China: A Socialist Model of Development?

Unprecedented Development In the past 40 years, China’s growth has been

phenomenal. And since the global financial THIS YEAR, XI JINPING WILL OBTAIN crisis and the Great Recession of 2008-9 in the an unprecedented third term as President of major capitalist economies, China has continued China and General Secretary of the Communist to close the output gap with the leading capitalist Party of China (CPC). He is now China’s most economies. China’s industrial output has risen powerful leader since Mao Zedong. Like Mao, from being about 70% of the US in 2008 to Xi now has his own ‘body of political thought’ overtaking the US by a substantial margin to carrying his name as added to the Communist reach 140% by 2019. In those 12 years before the Party’s constitution after the 19th Party Congress pandemic broke, China’s industrial output rose at which Xi pledged to lead the world’s second- 150% while industrial production in the US rose largest economy into a “new era of international just 25%. With 19% of the world’s population, power and influence”. At a closing ceremony no country has ever grown so fast – only India, in the Mao-era Great Hall of the People, it was with 16% of the world’s people, is close. Back announced that Xi’s Thought on Socialism with in the early 1980s, three-quarters of the world’s Chinese Characteristics for a New Era had been people were better off than the average Chinese. written into the party charter: “The congress Now only 31% are (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). In 2010, 87 unanimously agrees that Xi Jinping Thought countries had a higher per capita gross domestic … shall constitute [one of] the guides to action product (GDP) than China, but 83 were lower. of the party in the party constitution,” a party This is an achievement without precedent. resolution stated (Li, 2017Li (2017). The source article does not provide a separate full bibliographic entry for this citation.).

Figure 1. Share of global GDP: China and India ($ market prices) incorporated into the industrial machine; and

China is still sucking up as much of the world’s raw materials as it needs to sustain its expansion (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). There is no other way to describe it: China is exceptional in the history of economic development over the last 250 years, surpassing even the earlier economic miracles of Asian economies like Japan or Korea. China’s share of global income has increased from less than 4% in 1968 to near 20% in 2021, with most of that

Source: World Penn Tables 10.0, author's calculation. increase occurring only after 2002. Indeed, the

change in China’s share alone explains 87% of

Even if China’s average real economic growth the entire decline in the share of the advanced

were to slow from hereon to about 5% a year economies in the period 1980–2015. India is

instead of the near double-digit expansion of nowhere compared to China (Figure 1).

the past, the gap with the G7 economies would As a result of this exceptional growth in

continue to narrow. China’s working population output and incomes, nearly 900 million Chinese

has now peaked, but there are still hundreds of have been taken out of poverty (or $1.90 a day

millions of rural workers and peasants to be as defined by the World Bank (2016)), while

Figure 2. Share of population living at below $5.5 a day

Source: World Bank

other huge “developing” economies have made Figure 3. Life expectancy at birth in key emerging

little progress (Figure 2). Even if we use a more markets and US (yrs)

realistic threshold for poverty of $5.5 a day, China’s poverty rate is well below its peers. GDP is but one measure of progress. A key indicator of human development is life expectancy. From life expectancy at birth in 1960 of just 44 years, China’s average life expectancy is now 77 years. It is catching up with the US, where there has been a fall since the end of the Great Recession. And China has outstripped all the other so-called large emerging economies

(Figure 3) (Roberts, 2020b). Source: World Bank

The World Bank has a Human Development calls a “comparative advantage defying strategy” Index (HDI) which “is a summary measure (CAD) towards a “comparative advantage of average achievement in key dimensions of following strategy” (CAF). By this, he means human development: a long and healthy life, that China’s leaders realized that the bias in state being knowledgeable and having a decent intervention towards developing heavy industry standard of living” (UNDP, n.d.UNDP (n.d.). The source article does not provide a separate full bibliographic entry for this citation.) (Figure 4).1 at the expense of agriculture or increasing capital China’s HDI was 17% below the world inputs instead of using the plentiful supplies of average in 1990 and less than two-thirds of the cheap labor created distortions in the prices of advanced economies (OECD). It reached the products, weakened agricultural prices and rural world average in 2010 and just prior to the start incomes relative to industry, kept consumption of the COVID-19 pandemic was 3% above - and too low and generated over accumulation with 85% of the OECD average. India is still 13% low capital productivity. This led to a range of below the world HDI average. China is now on “unviable” industries that could not compete a par with Brazil in human development, with a in world markets. But under Deng, China took population over six times larger. advantage of its real comparative advantage, the plentiful labor factor of production. Economic Models of Development growth then took off and China competed successfully in world markets through a What explains this miracle? Several explanations powerful combination of foreign investment that have been offered. This section looks at these and cheap labor (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). explanations for China’s economic explosion. In this view, previously Mao had pursued The consensus view is based on the neoclassical a wrong strategy. Under Mao, lack of model of growth. World Bank economist Lin industrialization, especially large heavy (2012) argues that China’s miracle is down industries that supported military strength, to a switch in economic policy under Deng was seen as the root cause of China’s then Xiaoping in the late 1970s away from what he

Figure 4. Human Development Index trends, 1990-2019 in an open, free market economy. Thus, the

government had to distort the economic institutions and nationalize resources to sustain non-viable industry. The priority industries under this strategy were inconsistent with the comparative advantage determined by the factor endowments in those provinces. Mao’s “great leap-forward” strategy retarded the functions of market, impeded capital accumulation and hindered technology and productivity progress in the provinces. Therefore, it was imperative to

Source: World Bank Human Development Index. replace the CAD strategy with a CAF strategy

(Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). backwardness. China under Mao gave firms But is this neoclassical model a convincing monopoly power in heavy industry sectors explanation for the take-off of China from the and subsidized them with lower-priced inputs, 1980s onwards? China’s economic growth prior often creating shortages. It allowed China to to the Deng “reforms” was not poor. China’s establish modern industries, test nuclear bombs real GDP increased at an annual average of in the 1960s and launch satellites in the 1970s. 6.7% from 1952-78, according to the World But labor-intensive sectors were repressed Bank, more than double that of the US during and yet that was where it held a comparative the same period. If we exclude the very first advantage. Thus, efficiency was low and growth years of the People’s Republic from 1952 to prior to 1979 was driven mainly by increased 1962—i.e., between the completion of the inputs not productivity (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). unification of the continental territory and the But under Deng, the argument goes, China period of the break with the Soviet Union— embarked on a “dual-track system”, introducing there was a recorded average of 8.2% growth reforms in some areas while maintaining the up to 1978, despite the damaging impact of status-quo in others. Farmers were one of the Cultural Revolution (World Bank 2013a). the first beneficiaries. They were allowed to The momentum of the Chinese economy was own their land again (collective farms were already strong before Deng.2 broken up) and could set prices for selling their There is a Keynesian explanation as an production that exceeded quota obligations alternative to the neoclassical market model. sold to the state at fixed prices. Meanwhile, Here the key factor in China’s development private enterprises, joint ventures and foreign was not a switch to a policy of “comparative investment into labor-intensive sectors were advantage” under Deng towards using cheap allowed (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). labor that allowed China to “take off ”. Instead, Under Mao, developing capital-intensive it was increased investment in machinery and heavy industries was extremely costly and technology i.e., greater capital inputs. Average such industries could not hope to be viable growth rates of capital stock in China (excluding

housing) rose 9.7% a year in 1952-78 and 10.9% down long-term interest rates (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.).

in the post-Deng period (World Bank 2013a). It In China, in contrast, relatively limited budget

is this sustained high accumulation (Figure 5), deficits have been combined with low interest

enabled by surplus transfers from rural areas, rates, a state-owned banking system and a huge

that explains the success of industrialization state investment programme. China pursued

and, to a large extent, the robust rate of GDP full blooded policies of the type recognizable

growth. from Keynes General Theory. It was Deng’s lack

The Deng revolution was not to adopt CAF, of ideology or commitment to either a market

as Lin claims, but to end administrative control or state-led economic model (Deng: “I don‘t

of investment and replace it with Keynesian- care if the cat is black or white, so long as it

style stimulus and management that would catches mice.”)3 that was the reason for China’s

boost private sector investment. So, the economic success after 1978.

Chinese model of development, or “socialism A Marxist model of China’s economic

with Chinese characteristics”, is really a radical development does not start from looking at the

version of Keynesianism (Ross, 2013Ross (2013). The source article does not provide a separate full bibliographic entry for this citation.). It is comparative advantage of factors of production

different to Keynesian policies in the US and and or at the rate of savings or investment in

Europe, where budget deficits are utilized, low an economy. Marxist theory starts from the law

central bank interest rates are pursued with of value. Marx’s law of value argues that, under

some forms of quantitative easing to drive capitalism, production is not to meet consumer

Figure 5. Investment to GDP (%) 1980-2018

Source: IMF, Author's calculations

needs but primarily to obtain profit. Value can sector, the accumulation of capital for profit,

only be created by the exertion of human labor. with prices determined by markets and not by a

Surplus value (or profit) thus emerges when plan; and finally, the opening up of “free trade”

capitalist producers sell goods and services on a and foreign investment.5

market for commodities for a price that is higher

than the costs of production. That is possible The State-Private Sector Balance

because the value created by labor power is

more than the value paid to labor power.4 The Over the last 40 years, there has been a signifi-

issue is how much the law of value and private cant expansion of privately-owned companies,

ownership dominates in the Chinese economy both foreign and domestic, with the establis-

over planning for social needs based on state hment of a stock market and other financial

ownership of the means of production. institutions (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). Indeed, most ob-

servers, using official data, reckon that private

China is home to 109 corporations sector enterprises constitute around 60-70% of

listed on the Fortune Global GDP and assets now (Xinhua, 2018Xinhua (2018). The source article does not provide a separate full bibliographic entry for this citation.).

But this is misleading. Szamosszegi and Kyle 500 - but only 15% of those are (2011) analyzed the influence of the state se-

privately owned. ctor in China. They defined the state sector

as consisting of three main components: sta-

The Soviet Union restricted the law of te-owned enterprises (SOEs) fully owned by

value to the barest minimum through central the state through the State-owned Assets and

planning, state ownership of industry and Supervision and Administration Commission

collectivization of agriculture (Roberts, (SASAC); SOEs that are majority owners of en-

2020a). The switch from a centrally planned terprises that are not officially considered SOEs

economy in the Soviet Union after 1990 into but are effectively controlled by their SOE ow-

a market economy with foreign investment ners; and entities owned and controlled indi-

and privatization, was carried out overnight rectly through SOE subsidiaries based inside

with disastrous consequences. But as Isabelle and outside of China (state-holding enterpri-

Weber (2021) has shown, after much debate, ses, SHEs). Urban collective enterprises and

China’s leaders after Mao did not go down the government-owned township and village en-

road of restoring capitalism through the “shock terprises (TVEs) also belong to the state sector

therapy” of privatization and the dismantling but are not considered SOEs.6 They concluded

of state control. Instead, they eventually that: “When data are analyzed by sector, it be-

opted for an opening-up of the planned state- comes clear that SOEs and SHEs account for

owned economy to capitalism, partly through the majority of investments in most major se-

privatization but mainly through foreign ctors in the Chinese economy (Szamosszegi &

investment. This meant a gradual increase Kyle, 2011: 16). “SOEs and SHEs were respon-

in the influence of the law of value into the sible for 40 percent of China’s GDP and 45 per-

Chinese economy; namely a bigger private cent of non-agricultural GDP”( Szamosszegi &

Kyle, 2011: 21) and “it is reasonable to conclu- At the same time, the single party state mac-

de that by 2009 nearly half of China’s economic hine infiltrates all levels of industry and activity

output could be attributable to either SOEs, in China. Fan, Morck and Yeung (2013) found

SHEs, and other types of enterprises controlled that the CCP, by controlling the career advan-

by the SOEs indirectly. If the output of urban cement of all senior personnel in all regulatory

collective enterprises and the government-run agencies, all SOEs, and virtually all major fi-

proportion of TVEs are considered, the broad- nancial institutions of SOEs and senior Party

ly defined state sector likely approximates 50 positions in all but the smallest non-SOEs, re-

percent.” (Szamosszegi & Kyle, 2011: 25). tains sole possession of Lenin’s Commanding

Similarly, Hsieh and Song (2015) found that Heights. “The CCP Organization Department

“More than two-thirds of companies were dire- (CCP OD) manages all senior promotions th-

ctly or indirectly controlled by SASAC, but al- roughout all major banks, regulators, govern-

most half of these firms are legally registered as ment ministries and agencies, SOEs, and even

private” (p. 12). When these private companies many officially-designated non-SOE enterpri-

are redesignated as state-controlled, then SOEs ses. The Party promotes people through banks,

still make up a substantial part of the national regulatory agencies, enterprises, governments,

economy – roughly controlling 30 percent of and Party organs, handling much of the natio-

the total secondary and tertiary assets, or over nal economy in one huge human resources ma-

50 percent of total industrial assets (Hsieh & nagement chart.” (Fan, Morck & Yeung, 2013:

Song, 2015). 2). In listed companies, “each enterprise also

The size and influence of the state sector has a Communist Party Committee, headed by

in China is not replicated in any other major a Communist Party Secretary. These advise the

economy (Figure 6). The IMF public sector

database (IMF, 2017IMF (2017). The source article does not provide a separate full bibliographic entry for this citation.) shows that public sec- Figure 6. China's public sector dominates public sector stock to

tor stock to GDP stands at 150%; well ahead GDP; publicprivate asset ratio; public investment to GDP (%)

of that other Asian miracle of the past, Japan; and three times larger than in India or the US. Public sector assets are over three times larger than the private sector, while in every other major economy, private sector assets are larger. Public investment in China is annually 16% of GDP compared to less than 4% in the US or the UK. China is home to 109 corporations listed on the Fortune Global 500 - but only 15% of those are privately owned. The major banks are state-owned and their lending and deposit policies are directed by the government (much to

the chagrin of China’s central bank and other Source: IMF Investment and Capital Stock database,

Author's calculations. Averages for period 2010-14 pro-capitalist elements) (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.).

CEO on critical decisions and are kept infor- economist Yongding (2014) put it: “China

med by Party cells throughout the enterpri- has to maintain its capital controls in the fo-

se that also monitor the implementation of reseeable future. If China were to lose control

party policies. Indeed, the Party Secretary over its cross-border capital flows, it could

plays a leading role in major decisions and lead to panic and so capital outflows would

can overrule or bypass the CEO and board turn into an avalanche and eventually bring

if necessary.” (Fan, Morck & Yeung, 2013:8). down the whole financial system.” (par.14).

Fraser Howie (2011) highlighted how os- It was these very restrictions that enabled

tensibly private companies are really “state China to expand investment and technology,

overseen enterprises”. “All Chinese corpora- employ swathes of labor and generally avoid

tes are effectively either state owned enterp- control of its destiny by multinational com-

rises or state overseen enterprises,” World- bines, up to now (Roberts, 2020aRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.).

View (Stratfor, 2018Stratfor (2018). The source article does not provide a separate full bibliographic entry for this citation.) found that “80-90% of SOEs are concentrated in vital or high-profit

industries such as finance, power, energy, te- As capitalists try to raise the

lecommunications and defence manufactu- productivity of labor by shedding

ring. And these enterprises -particularly the labor with technology and

roughly 100 centrally administered SOEs- so lowering labor costs and

have grown much bigger.” (par.4). Milhaupt increasing profits and market and Zheng (2016) found that 95 out of the share, the overall profitability of top 100 Chinese private firms and eight out of the top ten internet firms had a founder or investment and production begins

de facto controller who was currently or for- to fall.

merly a member of central or local political

organizations such as People’s Congresses And as David Kotz (2020) concluded:

and People’s Political Consultative Confe- “Most of the current studies ignore the role

rences. Also, state-controlled industrial as- of SOEs in stabilizing economic growth and

sociations actively supervise the operations promoting technical progress. We argue that

of private firms in their respective industries SOEs are playing a pro-growth role in seve-

and have retained much, if not all, of the ral ways. SOEs stabilize growth in economic

power exercised by their state predecessors. downturns by carrying out massive invest-

Private firms are prodded or even forced to ments. SOEs promote major technical inno-

participate in state-led industrial restructu- vations by investing in riskier areas of tech-

ring efforts. The right of corporate owner- nical progress. Also, SOEs adopt a high-road

ship must yield to the state’s plans for rest- approach to treating workers, which will be

ructuring an industry (Milhaupt & Zheng, favorable to the transition toward a more

2015). sustainable economic model. Our empirical

Similarly, when considering the control analysis indicates that SOEs in China have

over foreign investment, leading Chinese promoted long-run growth and offset the

adverse effect of economic downturns.” (Qi Figure 7. China: internal rate of return

& Kotz, 2020: 112).

Productivity versus Profitability

The Keynesian analysis correctly looks at investment in the means of production as the key driver of China’s development. But it misses a key barometer of economic development, the productivity of labor. In so far as there is a private sector in a developing economy and world markets, then there Source: Penn World Tables 10.0,

is a continual conflict between increased author’s calculations

productivity and profitability, as there is in

capitalist economies where the law of value its relative contribution to the economy –

dominates. and that means looking at the rate of profit

The Marxist model argues that the level on capital invested both by the state and

of productivity will decide economic growth capitalist sectors.

because it reduces the cost of production and The empirical evidence reveals three

enables a developing nation to compete in phases of profitability in China (Figure 7).

world markets. But in a capitalist economy There was a general fall in profitability in

where the law of value and markets operate, the Mao period (when the capitalist sector

there is a contradiction: a long-term inverse was relatively small). Between 1978-

relationship between productivity and 95, there was an upswing in profitability

profitability (Roberts, 2018Roberts (2018). The source article does not provide a separate full bibliographic entry for this citation.). In a capitalist as production expanded from the Deng

economy, companies compete with each reforms. But from the end of 1990s, there

other to raise profitability through the was a steady fall, as over-investment gathered

introduction of new technologies. But as pace and other economies, particularly in

capitalists try to raise the productivity of the developing world, went through a series

labor by shedding labor with technology and of crises (Mexico 1994, Asia 1997-8, Latin

so lowering labor costs and increasing profits America 1998-01). From about 2001 up to

and market share, the overall profitability the Great Recession of 2008, there was a

of investment and production begins to temporary rise in profitability as the world

fall. Then, in a series of crises, investment expanded at a credit-fueled pace and trade

collapses and productivity stagnates growth accelerated. However, since the

(Roberts, 2020cRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). Great Recession, the profitability of China’s

So, in any analysis of China’s model of burgeoning capitalist sector has been falling,

economic development, we must consider along with investment and GDP growth.

the impact of its large capitalist sector and But the downward tendency of the

Figure 8. Correlation between rate of profit and real GDP growth GDP growth. So, the Chinese economy

has become increasingly vulnerable to the vagaries of its capitalist sector and to international capital (Figure 8) (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). Does this mean that China is heading for major slump along classic capitalist lines some time in this decade? Brazilian Marxist economists, Marquetti et al (2020) suggest that: “The larger profit rate explained the robust mechanization in the early stages of the process. But fast capital accumulation diminishes capital Source: Penn World Tables 10.0; IRR series for profi-

tability; real GDP growth calculations productivity and the profit rate. Then,

the success in catching up must hinge on

rate of profit has not operated with the raising the saving and investment rates. It

same effect in China as in the major may further reduce capital productivity

capitalist economies. The state-dominated and the profit rate, putting the process at

investment and capital stock in China risk, which seems to be the case in China

means that there has been no strong and India.” (p.330). The same warning is

correlation between the profitability of sounded by Marxist economist Minqi Li

Chinese capital and real GDP growth since (2017): “if China were to follow essentially

the formation of the People’ Republic until the same economic laws as in other

recently. In other words, the profitability capitalist countries (such as the United

of capital did not decide the level of States and Japan), a decline in the profit

investment in productive assets and rate would be followed by a deceleration

economic growth (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). of capital accumulation, culminating in a

In the Mao period, there was no major economic crisis.” (Roberts, 2020cRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.).

correlation between the rate of profit and But does China follow “essentially

real GDP growth. After Deng’s reforms in the same laws as in other capitalist

the 1980s, the correlation turned positive, economies”? What has happened with the

although less positively correlated than in relative “liberalization” of the state-owned

the rest of the G20 (capitalist) economies planned economy over the last 40 years is

or the G7. However, since China entered the encroachment of the law of value into

the World Trade Organization and new areas of the economy and with it, a

privatised sections of its state sector in huge rise in the inequality of wealth and

the late 1990s and early 2000s, there has income. China’s Gini income coefficient,

been a significant correlation between the an index of income inequality, according

profitability of Chinese capital and real to Xie and Zhou (2014), rose from 0.30 in

1978, when the Communist Party began Figure 9. China: GINI coefficient of income inequality

to open the economy to market forces, to 0.49 by 2008. This rise in income inequality was partly the result of the urbanization of the economy as rural peasants moved to the cities. Urban wages in the sweatshops and factories are increasingly left peasant incomes behind (not that those urban wages are anything to write home about when workers assembling Apple iPads are paid under $2 an hour). But the rise in

inequality was also partly the result of an Source: World Bank Gini Index.

elite controlling the levers of state power

and allowing some Chinese (especially capita ratio compared to the US and other

CPC members) to “get rich”. Urbanization major economies is relatively low. And the

has slowed since the Great Recession inequality of wealth in China is centred

(from a peak annual rate of 3.75% before on property, not financial assets (so far),

to just 1.3% after 2008) and China’s Gini unlike the main capitalist economies of

inequality index has fallen back, if still at the G7 (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). While over 90%

a high level by international comparison of housing is privately owned, only 30%

(Figure 9). of stocks and shares are. That is because

When it comes to inequality of personal of the dominance of SOEs in corporate

wealth, China is not so unequal as many equity.

of its international peers (Credit Suisse,

2021). The Gini inequality of wealth The Growth Challenge

ratio is much higher in Brazil, Russia and

India, and higher in the US and Germany. Almost half of China’s GDP growth

According to the latest estimates, the top since 1978 was from “capital deepening”

1% of wealth holders in China take 31% (i.e. investment), about one-third was

of all personal wealth compared to 58% from increased labor productivity and

in Russia, 50% in Brazil, 41% in India and the rest was from an expanding labor

35% in the US. This is a good measure of force (World Bank, 2019World Bank (2019). The source article does not provide a separate full bibliographic entry for this citation.). China’s labor

the economic power of the top elite and force is no longer expanding – indeed

oligarchs in these countries (Figure 10) the opposite is the case (Figure 11).

(Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). China’s population peaked in 2021 and

Much is made of the number of the working age population is set to fall

billionaires in “socialist” China, but given 20% by 2050, the aim of investment must

the size of the population and GDP, the per be towards job creation, automation and

productivity growth (Roberts, 2020cRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.).

Figure 10. Gini coefficient and Wealth share of top 1%

Source: James Davies Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2021

The latest census showed its population at through the use of cheap labor (if it ever

1.41bn up just 5.4% from 1.34bn in 2010 — did, as explained above) is over. Real GDP

the lowest rate of increase between censuses growth now depends on capital investment

ever. Those over-65s now make up 13.5% and particularly hi-tech investment

of the population, compared with 8.9% in aimed at raising the average level of labor

2010 when the last census was completed productivity. China’s average productivity

(Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). level is currently just 20% of the US (Figure

Thus, any idea that China can grow 12).

What are the prospects for China’s

Figure 11. Number of employed people in China from 2009 to 2019 economic growth from hereon and will it

(in millions) continue to close the gap with the US? A

program launched in 2015, Made in China 2025, aims to make the country competitive within a decade in ten industries, including aircraft, new energy vehicles, and biotechnology (Roberts, 2017Roberts (2017). The source article does not provide a separate full bibliographic entry for this citation.). According to a report by US investment bank, Goldman Sachs, China’s digital economy is already large, accounting for almost 40% of GDP and fast growing, contributing more than 60% of GDP growth in recent years (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). “And there is ample room for China to further digitalize its traditional sectors.”

Source: International Labour Organisation, (Goldman Sachs, 2022Goldman Sachs (2022). The source article does not provide a separate full bibliographic entry for this citation.).

ILOSTAT explorer. But there is a long way to go. The US

economy remains highly productive even Figure 12. Ratio of productivity of labour China-US (%)

compared to other advanced economies. The US remains the global R&D leader, accounting for nearly 30% of the world total. Data on patents granted—either total or specifically abroad—show that the US share has held roughly steady at around 20%. China’s share of total patents granted has risen very rapidly over the last decade to over 20%, but most patents granted to Chinese innovators have come from the domestic patent office, with far fewer granted abroad (Statista, 2021Statista (2021). The source article does not provide a separate full bibliographic entry for this citation.). Knowledge and technology intensive Source: OECD, World Bank,

(KTI) industries contribute 38% of US GDP, Author's calculations

the highest of any major economy. But China

is not far behind at 35%, extremely high for been improving steadily. China is moving

a developing economy. While the US is the up in cross-country rankings from 29 in

largest producer of high-tech goods, its share 2011 to 17 in 2018 and is now the highest-

of world exports has shrunk considerably ranking middle-income country and the

while China’s share has grown. China’s first middle-income country to join the

R&D intensity, measured by R&D spending 20 most innovative (WIPO, 2019WIPO (2019). The source article does not provide a separate full bibliographic entry for this citation.). China

as a percentage of GDP, was 2.1 % of GDP has also redoubled efforts to build its own

versus 2.8% for the US. Indeed, China has semiconductor industry. The country buys

seen an almost 160% increase in ‘intellectual about 59% of the chips sold around the

property’ receipts from the world in the past world. To rectify this, Made in China 2025

decade, compared with an 11% increase for earmarks $150 billion in spending over ten

the US, which indicates China’s increased years.

knowledge diffusion throughout the world Then there is China’s Belt and Road

(Santacreu & Mackenzie, 2019Santacreu & Mackenzie (2019). The source article does not provide a separate full bibliographic entry for this citation.). Initiative7 (BRI), a global development

China’s information technologies (IT) strategy involving infrastructure

share of GDP climbed from 2.1% in 2011Q1 development and investments in 152

to 3.8% in 2021Q1. Although China still countries and international organizations.

lags the US, Europe, Japan and South Korea Contrary to views of Western economists,

in its IT share of GDP, the gap has been the BRI is not aimed primarily to make

narrowing over time (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). The profits. It is to expand China’s economic

global innovation index (WIPO, 2019WIPO (2019). The source article does not provide a separate full bibliographic entry for this citation.) influence globally and extract natural

shows that China’s innovation capacity has and other technological resources for the

Figure 13. Annual labour productivity growth (%) some four times faster than in the advanced

capitalist economies (Figure 13) (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). So even if the labor force does not grow in this decade (or even declines by say 0.5% a year), real GDP growth in China is still going to be at a minimum of 3.5% a year, and much more likely to be 5-6% a year, close to the Chinese government’s forecast in its latest fiveyear plan (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). Arthur Kroeber, head of research at Gavekal Dragonomics, Source: Conference Board, adjusted by CB has put it (Kroeber, 2021Kroeber (2021). The source article does not provide a separate full bibliographic entry for this citation.): “Is China fading?

domestic economy. And the BRI is not, as In a word, no. China’s economy is in good

some Marxist economists in the West argue shape, and policymakers are exploiting this

(Harvey, 2016Harvey (2016). The source article does not provide a separate full bibliographic entry for this citation.), the product of the need to strength to tackle structural issues such as

absorb “surplus capital” at home, similar financial leverage, internet regulation and

to the export of capital by the capitalist their desire to make technology the main

economies before 1914 that Lenin presented driver of investment.” Kroeber concludes

as key feature of imperialism. China is not that: “on a two-year average basis, China is

investing abroad through its state companies growing at about 5 per cent, while the US is

and banks because of “excess capital” or well under 1 per cent. By the end of 2021 the

even because the rate of profit in state US should be back around its pre-pandemic

and capitalist enterprises has been falling trend of 2.5 per cent annual growth. Over the

(Roberts, 2017Roberts (2017). The source article does not provide a separate full bibliographic entry for this citation.). Indeed, China looks to next several years, China will probably keep

expand its technological prowess and its growing at nearly twice the US rate.”

influence globally through the Initiative to

the likes of African and other states. And it Debt and COVID-19

is able to do so because its economic model

does not rest on the falling profitability Much is made of China’s rising debt levels

of its admittedly sizeable capitalist sector. as an obstacle to further growth and even

An Institute of International Finance (IIF) leading to a financial crash. Mainstream

report found that China is now the world’s economists have been forecasting for decades

largest creditor to low-income countries. that China is heading for a debt crash of mega

Even if you accept the downward proportions. It’s true that according to the

adjustments made by the Conference Board IIF, China’s total debt reached 317% of GDP

to China’s official productivity record (Wu, (Lee, 2021Lee (2021). The source article does not provide a separate full bibliographic entry for this citation.). But most of the domestic debt

2014), China still achieved an over 4% a is owed by one state entity to another; from

year productivity growth in the last decade, local government to state banks, from state

banks to central government. When that is all

netted off, the debt owed by households (54% accounts for 13% of the economy from just

of GDP) and corporations is not so high, 5% in 1995 and for about 28% of the nation’s

while central government debt is low by global total lending (Zhou, 2021Zhou (2021). The source article does not provide a separate full bibliographic entry for this citation.).

standards. Moreover, external dollar debt to President Xi Jinping said, “Houses are

GDP is very low (15%) and indeed the rest of built to be inhabited, not for speculation.”

the world owes China way more: 6% of global But the government allowed capitalist

debt. China is a huge creditor to the world speculation in property so that 15% of

and has massive dollar and euro reserves, all apartments currently are owned as

50% larger than its dollar debt. A financial investments, often not even connected to

crisis is ruled out as long as the state controls electricity supply. This property speculation

the banking system, but there are dangers was fueled by credit funded by the state

because of the recent attempts to loosen it up banks but also by “shadow banking” entities.

for private and foreign institutions to enter This sort of speculation wasted resources

the arena (e.g. there are a growing number of and did not direct investment into areas

bankruptcies in speculative financial entities) like reducing CO2 emissions to meet the

(Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). government’s declared aim to make China a

“clean economy” (Roberts, 2020cRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). A December 2020 meeting of the CPC A December 2020 meeting of the Politburo vowed to end what it called a CPC Politburo vowed to end what

“disorderly expansion of capital”. The

it called a “disorderly expansion capitalist sector had got too big for its boots.

of capital”. For instance, the capitalist Ant Group was

even aiming to take over household lending

Chinese leaders want to curb the debt from the state banks. Ant and other Chinese

level. Controlling the debt level can come capitalist tech and media companies were

in two ways; through higher growth from increasingly engaged in typically “Western”-

productive sector investment to keep the type mergers, secret contracts and other

debt ratio under control and/or by reducing financial irregularities. China’s regulators

credit binges in unproductive areas like had been turning a blind eye to all this for

speculative property. The debt problem years. Moreover, the financial faction in

has been caused by the Chinese authorities China’s leadership had got agreement to

having leant ever more towards expansion allow foreign investment banks to set up

through the capitalist sector and particularly majority-owned companies in China for the

into unproductive sectors like property and first time, with the eventual aim of “freeing

finance at the expense of productive sectors up” the finance sector from state control

like manufacturing technology, residential and allowing unregulated cross-border

housing, public education and health capital flows. In other words, China was set

(Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). The real estate sector now to become a full member of international

finance capital. The authorities were also The Chinese leadership has been forced to

allowing uncontrolled cryptocurrency zigzag back from “disorderly expansion” and

mining and operations in the country respond to the public backlash by launching

(Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). a programme for “common prosperity”

(Yao, 2021Yao (2021). The source article does not provide a separate full bibliographic entry for this citation.) and through a crackdown on the consumer tech and media giants and by The move to investment in introducing curbs on private education and technology rather than heavy speculative property development (Roberts,

industry and infrastructure is key 2021). It has also banned cryptocurrency

to China’s sustainable growth operations (Sigalos, 2021Sigalos (2021). The source article does not provide a separate full bibliographic entry for this citation.).

rate and to reducing the rise in Xi’s crackdown on the billionaires and his

greenhouse gas emissions, where call for reduced inequality is yet another zig

China is now the world leader. in the zigzag policy direction of the Chinese

bureaucratic elite: from the early years of rigid

But the COVID-19 pandemic changed state planning to Deng’s “market” reforms in

all this. There was growing public anger at the 1980s; to the privatization of some state

how the rich in China, as in the rest of the companies in 1990s; to the return to firmer

major economies, have gained hugely from state control of the “commanding heights” of

the financial and property price boom during the economy after the global slump in 2009;

the pandemic, while the majority struggled then the loosening of speculative credit after

through the lockdowns and faced increased that; and now a new crackdown on the capitalist

costs in education, health and housing and a sector to achieve “common prosperity”. These

serious risk to decent jobs for graduates and zigzags are wasteful and inefficient. They

others (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). happen because China’s leadership is not

The contradictions of China’s state- accountable to its working people; there are

controlled economy alongside a large and no organs of worker democracy. There is no

growing capitalist sector intensified during democratic planning; only the 100 million

the COVID-19 pandemic. If this were allowed CPC members have a say in China’s economic

to continue, it would begin to open up schisms future, and that is really only among the top

in the CP and the party’s support among (Yang, Novokmet, & Milanovic, 2019Yang, Novokmet, & Milanovic (2019). The source article does not provide a separate full bibliographic entry for this citation.). The

the population. Xi wants to avoid another other reason for the zigzags is that China

Tiananmen Square protest in 1989 after a huge is surrounded by imperialism and its allies

rise in inequality and inflation under Deng’s both economically and militarily. Capitalism

‘social market’ reforms8 (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). remains the dominant mode of production

Education, health and housing are the “three outside China, if not inside. ‘Common

mountains” that all Chinese households aim to prosperity’ cannot be achieved properly while

climb to get a better life – and yet costs for these the forces of capital remain inside and outside

were spiraling while the rich made millions. China (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.).

But there is no reason for China to Figure 14. % change in productivity and

abandon its growth model based on state- real wages since end of Great Recession

led investment in technology to compensate for the decline its workforce. The move to investment in technology rather than heavy industry and infrastructure is key to China’s sustainable growth rate and to reducing the rise in greenhouse gas emissions, where China is now the world leader (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). Some Western radical and Marxist economists advocate a switch from investment to consumption to expand the economy and

reduce inequality (Pettis, 2021Pettis (2021). The source article does not provide a separate full bibliographic entry for this citation.). But this semi- Source: Penn World Tables 10.0,

author’s calculations Keynesian solution has no validity. China’s stupendous growth up to now has not been education, transport, communications housing; achieved by getting consumption demand not just motor cars and gadgets. Increased to boost the economy. That is the solution personal consumption of basic social services applied in Western capitalist economies and is what is necessary. And it is here that China all that has achieved growth rates of just needs to act (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). around 2% a year. Anyway, it is not true that the Chinese model China versus the US has restricted consumption. Consumption may have been relatively low internationally as a Part of the growth challenge for China over share of GDP, but that is due to the fast pace of the next few decades is the intensifying trade investment expansion and urbanization in the and technology ‘cold war’ with the US and its last 40 years. Even so, real consumption growth allies that threatens to become a hot one. This has been 8.8% annually for over two decades is the geopolitical issue of the 21st century. The — the highest of any major economy. Strong US leaders have made that clear, as Commerce investment and increased productivity have Secretary Wilbur Ross under Trump put it: enabled average real wages in the last decade to the Made in China plan was an “attack” on rise faster than other major economy and even “American genius.” (Woodward, 2018Woodward (2018). The source article does not provide a separate full bibliographic entry for this citation.). faster than productivity (Figure 14). Originally from President Nixon onward, Indeed, consumption is rising much faster the US aimed to “engage” with China and in China than in the G7 because investment swamp the economy with its multi-nationals. is higher. One follows the other; it is not a But China has not played ball; indeed, its zero-sum game. And not all consumption SOEs have become serious rivals to America’s has to be ‘personal’; more important is ‘social conglomerates. So, the US has switched to consumption’ i.e. public services like health,

a policy of “containment”. The aim now is or the general population.

to weaken China’s economy and destroy So how can we characterize China in 2022?

its influence and perhaps achieve “regime China is not a capitalist economy, let alone an

change”. Blocking trade with tariffs; blocking imperialist one (Carchedi & Roberts, 2021Carchedi & Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.).

technology access for China and their exports; In Marxist terminology, it is a “transitional

applying sanctions on Chinese companies; economy”, namely one in between capitalism

and turning debtors against China; this may and socialism, but presumably heading

all be costly to imperialist economies. But the towards socialism. That transition involves the

cost may be worth it if China can be broken loss of state power by capital and its “armed

and US hegemony secured (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). bodies of men” (Marx, 1875). The transitional

economy has common ownership of the bulk of the means of production and credit and the planning of investment and production rather The current leadership has pledged being than left to market forces. The aim is to to continue with its state-directed raise the level of technology and productivity

economic model and broaden out of labor in order to reduce working hours and

its focus on economic growth to gradually end scarcity in social needs. There

include targets for environmental should be a gradual replacement of commodity

protection, innovation and self- production with direct production for use;

sufficient development. the gradual ending of wage labor and money,

both as a means of exchange and as a store of value; and what Marx and Engels called the

The Transition to Socialism progressive “withering away” of state power

(armies, police, officialdom).

The debate within the CPC leadership On these criteria, China is clearly not

continues about which way to take China: socialist. China is a transitional economy

towards a full market economy open to the as capitalist state power has been abolished

winds of global capitalism or to stay as they and capitalist production reduced, but China

are. But the current CPC leaders under Xi does not meet the other criteria to make a

plan no change in the general philosophy of transition to socialism: in particular, there

“socialism with Chinese characteristics” and is no equalization or restrictions on incomes

thus the maintenance of the dominance of and personal wealth; and the large capitalist

the state sector. Also, there is no intention of sector is not steadily diminishing, on the

moving towards “democracy” or control of contrary. But on the other hand, capitalists do

even local legal systems and decisions by the not control the state machine, the Communist

people. On the contrary, the leadership has set party officials do; the law of value (profit) and

up even more repressive state security services markets do not dominate investment, the

to curb any dissidence, either from capitalists large state sector does; and that sector (and

the capitalist sector) are under an obligation to Notes

meet national planning targets (at the expense 1 The HDI is the geometric mean of normalized indices for each of

the three dimensions. of profitability, if necessary) (Roberts, 2021Roberts (2021). The source article does not provide a separate full bibliographic entry for this citation.). 2 The official GDP figures for China are disputed by the Conference

China is at a crossroads in its development. Board (incorrectly in my view), but even the CB recognises an annual

GDP growth rate from 1953-78 of 4.5-5.0% see (Roberts, 2020bRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). Its capitalist sector has deepening problems 3 “Because in the US and Europe, of course, it is held that the colour

with profitability and debt. The current of the cat matters very much. Only the private sector coloured cat

is good, the state sector coloured cat is bad. Therefore, even if the

leadership has pledged to continue with its private sector cat is catching insufficient mice (i.e., the economy is in

state-directed economic model and broaden severe recession), the state sector cat must not be used to catch them.

In China, both cats have been let loose – and therefore far more mice

out its focus on economic growth to include are caught.” (Ross, 2014Ross (2014). The source article does not provide a separate full bibliographic entry for this citation.).

targets for environmental protection, 4 For more on Marx law of value see (Roberts, 2018Roberts (2018). The source article does not provide a separate full bibliographic entry for this citation.).

5 The decision of the Chinese leaders for a gradual move to

innovation and self-sufficient development capitalism was anything but a foregone conclusion or a “natural”

(Roberts, 2020cRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). This is all part of the strategy choice predetermined by Chinese exceptionalism, Weber claims.

China’s change was carved out in a fierce debate. Some argued for

of developing a “dual circulation” economy in shock therapy-style liberalization while others preferred gradual

marketization beginning at the margins of the economic system.

which China will develop domestic demand Indeed, on at least two occasions, Deng opted for a “big bang” in price

and self-sufficiency while the rest of the world reform, but then stepped back from the brink.

6 The authors commented: “A common mistake is to assume that

remains stalled by coronavirus and economic any entity that is not an SOE belongs to the private sector. There

crises (Roberts, 2020bRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). China’s leaders is a state sector, which consists of SOEs, and a non-state sector,

which consists of firms with other forms of ownership, including

are determined to resist the new policy of pure private ownership by domestic and foreign natural persons

and mixed ownership entities in which SOEs are part owners and/

“containment” emanating from the “liberal or controlling. For the vast majority of these listed firms, the largest

democracies”. The trade, technology and shareholders are SOEs.” (Szamosszegi & Kyle, 2011: 10).

7 “Belt” refers to the overland routes for road and rail transportation,

political “cold war” is set to heat up over the called "the Silk Road Economic Belt"; whereas "Road" refers to the sea

rest of this decade, while the planet heats up routes, or the “21st Century Maritime Silk Road”.

8 As Xi put it in a long speech in July to party members: “Realizing

too (Roberts, 2020cRoberts (2020a). The source article does not provide a separate full bibliographic entry for this citation.). common prosperity is more than an economic goal. It is a major

But as the components of a transitional political issue that bears on our Party’s governance foundation. We

cannot allow the gap between the rich and the poor to continue

economy from capitalism to socialism reveal, growing—for the poor to keep getting poorer while the rich continue

growing richer. We cannot permit the wealth gap to become an

this qualitative change does not mean or unbridgeable gulf. Of course, common prosperity should be realized

guarantee that China will progress “towards in a gradual way that gives full consideration to what is necessary

and what is possible and adheres to the laws governing social and

socialism”, as the experience of the 70 years economic development. At the same time, however, we cannot afford

to just sit around and wait. We must be proactive about narrowing the

of the Soviet Union confirms. China is still gaps between regions, between urban and rural areas, and between

far away from that. Indeed, the forces of rich and poor people. We should promote all-around social progress

and well-rounded personal development, and advocate social fairness

imperialism from without and of the law of and justice, so that our people enjoy the fruits of development in

a fairer way. We should see that people have a stronger sense of

value within from domestic capitalist sectors fulfilment, happiness, and security and make them feel that common

suggest that China is in a “trapped transition” prosperity is not an empty slogan but a concrete fact that they can

see and feel for themselves.” (Xi, 2021Xi (2021). The source article does not provide a separate full bibliographic entry for this citation.). As Xi perceptively admitted

which could eventually be reversed, as it in this speech about the demise of the Soviet Union: “The Soviet

Union was the world’s first socialist country and once enjoyed

proved for the Soviet Union. That can only be spectacular success. Ultimately however, it collapsed, mainly because

avoided if transitional economies emerge in the Communist Party of the Soviet Union became detached from the

people and turned into a group of privileged bureaucrats concerned

other key countries globally. only with protecting their own interests (my emphasis). Even in a

modernized country, if a governing party turns its back on the people, it will imperil the fruits of modernization.”

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