australianvoice (australianvoice) wrote,

China's Transition from Socialism to State Controlled Capitalism

Marxism 1894

Marxism 1994

After the changes introduced by Deng Xiaoping, China has continued to resist control by the US Empire and has increased the living standards of the Chinese people. China can now challenge the West in advanced technology and, unlike the application of neo-liberal policies in Russia, the Chinese Communist Party has maintained its political control. Many admire this success in the last 40 years, but is China still a socialist country?

This article will discuss the changes in China's relations of production and its ideology in the last 40 years. We will see how China's recent economic development is a shining example of neo-liberal capitalism, not socialism. As Harvey explains: “By taking its own peculiar path towards ‘socialism with Chinese characteristics’ or, as some now prefer to call it, ‘privatisation with Chinese characteristics’, it managed to construct a form of state-manipulated market economy.”(1)

China's success is usually measured in capitalist and neo-liberal terms: China's GDP has grown rapidly and it has an ever increasing volume of exports to the rest of the world. It can now begin to rival the West in advanced technology. Many are in awe of the giant skyscrapers and traffic jams typical of major cities in the West. These “achievements” are the result of a subtle implementation of essentially the same neo-liberal policies forced on Chile in 1973 and most of the world including the US, UK, and Australia.

David Harvey has pointed out there is what he calls a “remarkable coincidence” between the application of neo-liberal policies in the West and in China:

“These reforms would not have assumed the significance we now accord to them, nor would China’s extraordinary subsequent economic evolution have taken the path and registered the achievements it did, had there not been significant and seemingly unrelated parallel shifts in the advanced capitalist world with respect to how the world market worked. The gathering strength of neo-liberal policies on international trade during the 1980s opened up the whole world to transformative market and financial forces. In so doing it opened up a space for China’s tumultuous entry and incorporation into the world market in ways that would not have been possible under the Bretton Woods system. The spectacular emergence of China as a global economic power after 1980 was in part an unintended consequence of the neoliberal turn in the advanced capitalist world.”(2)

Those who realise the super-rich have worked for decades to create a globalised system in which giant banks and multi-nationals control the economic development of the world would be reluctant to accept that these changes are just an interesting coincidence in world history. China's amazing success simply could not have happened if its rush headlong into an export-oriented economy had not been accommodated by the rest of the world adopting neo-liberal “free trade” policies which welcome cheap imported products instead of restricting them by tariffs or other means.

Neo-liberalism and globalism are two sides of the same coin. This system has created permanent unemployment - called post-industrial society - in the West and a vast army of cheap labour in China. After the death of Mao, there must have been an agreement between the leaders of the Chinese Communist Party (CCP) and the representatives of the super-rich in the West. The goal of the super-rich was to implement neo-liberal policies everywhere they could. The goal of the CCP was to use these same neo-liberal policies to dismantle the socialist relations of production in China and create the necessary pool of cheap labour needed to undercut the better wages and conditions achieved by workers in the West after WWII. What follows will focus on the steps taken by the CCP to carefully reverse all the socialist relations of production and related policies like the “iron rice bowl” created after China's liberation.


Privatisation of agricultural communes.
Land formerly owned and worked in common was divided into separate plots and allocated to peasant families. They were then responsible for their own success or failure They were also encouraged to sell their products to rural markets, engage in rural industries, and seek work in nearby township enterprises. Eventually peasants could lease or rent land as well a hire labour. Still they did not have full ownership of their land, which was held by the newly constituted local government bodies that replaced the communes.

Health and education in rural areas had been provided by the commune system When they were taken over by the local government bodies these benefits disappeared. These services were replaced by a standard neo-liberal “user pays” systems which required an up-front fee for access to education and heath care. Public health-care covered 90 percent of the population in 1978, but only covered 4 percent in 1997.(3) These changes helped to create a giant floating workforce which had been previously kept out of urban areas by a system of residency.

Creation of small capitalist enterprises:

The new organisations operating on capitalist principles created by the reforms were called township and village enterprises (TVEs). They were set up by the local government bodies from assets which were in effect privatised from the agricultural communes. They operated in an open labour market with no regulations for wages or conditions and no job security. In such an unregulated labour market, there was little opportunity to bargain for increased wages or better conditions. By 1993, these enterprises numbered 25 million and employed over 123 million workers.(4) According to Harvey:

“Accounts as to what these TVEs were about vary greatly. Some cite evidence that they were private operations ‘in all but name’, exploiting dirt-cheap rural or migrant labour—particularly young women—and operating outside of all forms of regulation. The TVEs often paid dismally low wages and offered no benefits and no legal protections. But some TVEs provided limited welfare and pension benefits as well as legal protections. In the chaos of transition, all manner of differences emerged, and these frequently had marked local and regional manifestations.”(5)

These changes put peasants into essentially the same system which was replaced by the introduction of the communes 30 years earlier. Some peasant families could do well by selling extra produce, and hire other peasants as labourers. Members of families who could not produce an adequate surplus to feed themselves or sell on the open market could work for those who could afford their wages or they could work for the TVEs.

Contract labour introduced:
Another development was that workers began to be hired on a contract basis with no social protections and limited tenure. This replaced the older policy called the “iron rice bowl' which involved lifetime employment together with housing, schools, health care and pensions paid by the state owned enterprises (SOEs). By April 1987, the state-owned enterprises were using 7.5 million contract workers, about 8 percent of the industrial workforce.(6) SOEs were also given the ability to hire and fire workers in the name of enhancing productivity and efficiency, another policy requirement of neo-liberalism. During this period price controls were also removed, another standard neo-liberal policy.

Privatisation of “human services”:
In the socialist system created after liberation housing, health care, welfare, education and pensions were provided free of charge to all who needed them by the SOEs, rural communes or the state. Starting in the late 1970s one of the key neo-liberal policies introduced by the Communist Party was to force people to pay for these basic necessities. Now workers must find their own housing in the newly emerged private housing markets. Needless to say the unemployed found themselves homeless. This explains why the workers building the giant office towers and apartments in Chinese cities live in these construction sites. Their housing is provided in a neo-liberal way by their employers. Now workers must also pay a part of the costs for services in most welfare fields and social insurance, such as pensions, medical care, unemployment insurance and higher education,

Foreign investment introduced:
Another policy change allowed foreign investors to manufacture commodities for export using Chinese workers. It began with the establishment of four special economic zones in 1979. Later 14 coastal cities and Hainan Island were opened to foreign investment in 1984, and the policy extended to three delta areas (Pearl River Delta, Yangtze River Delta, and Yellow River Delta) in 1985. After the Revolution Chinese workers had been protected from both foreign and domestic exploitation in which surplus value is taken by private firms rather than used by the state for the benefit of the workers and the rest of the population. Foreign investment and the expanding role of the TVEs provided work for the millions of unemployed who left their villages or who were no longer employed in the SOEs.

These vast social changes removed many of the protections provided by the liberation of China in 1949 and created significant problems for ordinary people. In addition to the very high levels of unemployment, lower wages and new expenses for education and health care, there was inflation as price controls were removed and more pressure on workers as “reforms” began to exert tighter control over work schedule and raise work quotas. People were also angered by corruption and tax evasion by the new capitalists similar to trends in the deregulated neo-liberal West.

According to Alvin Y. So and Yin-Wah Chu these problems helped to fuel the pro-democracy movement which mounted a protest at Tiananmen Square:

“In the late 1980s, economic problems and social grievances had triggered a democracy movement that led to a confrontation between the protesters and the party-state in the Tiananmen Square. The Tiananmen Incident was a first major challenge to the Chinese communist party-state during the Post-Mao era.”(7)

This protest was put down by the leadership allied with Deng who wished to continue introducing neo-liberal policies, and later more changes were introduced.


“In the first wave of neoliberal reforms in the 1980s, the reform policies were aimed mostly to expand the private sector; they had left the public sector largely intact. Thus the reformers in the 1980s used the term 'market socialism' to stress that China was still socialist because it had a dominant public sector and the party-state was still in control of the strategic sector (or the commanding height) of the Chinese economy. However, (in the second wave) the party-state turned to the public sector.”(8)

Privatisation of state owned enterprises:
In the 1990s most of the SOEs were no longer funded by the state and had to operate independently in the market. In effect the SOEs were expected to run like an independent private profit- making enterprise. They could go bankrupt if they were losing money. The SOEs were allowed to layoff workers, to increase work intensity and to cut worker‘s benefits to remain competitive in the market. In the late 1990s millions of state workers became unemployed or their benefits were reduced.

Then in 2003 with a new leadership team in place a significant change in policy was decided:

“On Oct. 14, the Central Committee passed a resolution that quietly called on the party to push ahead with privatisation and cleared the way for the sale of medium and large state-owned enterprises. For the first time, the party said it would "vigorously develop a mixed economy" with stock ownership playing a dominant role. "Before the policy was 'Grasp the Large, Release the Small,' but now the large enterprises can be released too," said Zhang Wenkui, a researcher at the State Council Development Research Center, which advises the leadership. He said the resolution also opened the door for the state to sell majority stakes in strategic industries.”(9)

The number of SOEs fell from 100,000 to 60,000 between 1995 through 1999. From 1996 to 2001, some 36 million state-enterprise workers were laid off; over the same period collective farms let go of 17 million workers. By the end of the 1990s, SOEs employed only 83 million people, which is just 12 percent of the total employment and only 1/3 of urban employment. As of 2001, state enterprises accounted for only 15 percent of total manufacturing and less than 10 percent of employment in domestic trade.(10)

Increased role for banks:
Initially the TVEs were funded by assets from the communes. Many failed but successful ones were able to grow through connections with overseas Chinese who could find export markets for their products. Eventually both TVEs and SOEs could gain access to foreign capital and loans from Chinese banks:

“The state-owned banking system expanded during the 1980s and gradually substituted for the central state in providing lines of credit to the SOEs, the TVEs, and the private sector. These different sectors did not evolve independently of each other. The TVEs drew their initial finance from the agrarian sector and provided markets for outputs or furnished intermediate inputs to the SOEs. Foreign capital integrated into the TVEs and the SOEs as time went on, and the private sector became much more significant both directly (in the form of owners) and indirectly (in the form of stockholders). When the SOEs became less profitable they received cheap credit from the banks. As the market sector gained in strength and significance, so the whole economy moved towards a neoliberal structure.”

Chinese stock exchange reappears:
The Shanghai Stock Exchange was closed in 1949. It was reopened in November 1990. Stocks, bonds and shares in mutual funds are traded in a system divided into type A or Type B. Financial instruments of type A are denominated in renminbi, while those traded in US dollars are of type B. Initially trades involving type A financial instruments could only made by domestic investors. However, after 2001 financial instruments pf type B were open to both domestic and foreign investors. In 2003 a Qualified Foreign Institutional Investor (QFII) program was introduced in which foreign investors were allowed limited access to trading type A financial instruments.(12) Now, in 2018, there are 287 overseas institutions in the QFII system with quotas amounting to $99.5 billion.(13)

SOEs to be fully privatised:
In August 2015 the Central Committee of the Chinese Communist Party released a document entitled: “Guiding Opinions of the CPC Central Committee and the State Council on Deepening the Reform of State-owned Enterprises”. The report was summarised by Xinhua news service. Here are the main points:

“China will modernize SOEs, enhance state assets management, promote mixed ownership and prevent the erosion of state assets, according to the guideline released by the Communist Party of China Central Committee and the State Council. The government will improve the competence of SOEs and turn them into fully independent market entities.
“The government plans to achieve major reforms in key areas by 2020, when SOEs are expected to be more robust and influential and have greater ability to avoid risks. The government should nurture a group of SOEs that are creative and can face international rivals by that time.
“According to the guideline, China's SOEs will be divided into two categories, for-profit entities and those dedicated to public welfare. The former will be market-based and stick to commercial operations and should aim to increase state-owned assets and boost the economy, while the latter will exist to improve people's quality of life and provide public goods and services.
“In terms of mixed-ownership reforms, the government should introduce multiple types of investors so SOEs can achieve mixed ownership and encourage them to go public, the guideline said.”

While the policy separates commercial enterprises from those which provide public goods and services, since the state will not be contributing to the provision of these goods and services, they must operate on the neo-liberal “user pays” principle. If the state no longer contributes to the provision of these goods and services, they will either go bankrupt or the fees they charge must cover the cost of delivering these goods and services


Alvin Y. So and Yin-wah Chu focus most of their discussion on China's economic transformation, but they do make a brief comment on China's ideological changes:

“In the post-reform era, China was experiencing an ideological vacuum since the state could no longer be legitimized by Marxism or communism. Thus, nationalism became the state‘s only hope to get the support of the Chinese masses. The Chinese state seems to believe that the best response is to build a strong sense of national cohesiveness based on cultural heritage and tradition rather than to develop a nationalism based solely on hostility toward the outside world.”(15)

So and Chu themselves would know exactly what the Chinese “cultural heritage and tradition” consists of, but those who have only lived in the West might need to have it explained:

“The last several years have seen an official revival of Confucianism in China. President Hu Jintao has developed the idea of a 'Harmonious Socialist Society,' drawing on Confucian ideas. The government has set up a network of cultural Confucius Institutes around the world. And earlier this year, a statue of Confucius was erected in Tiananmen Square.”

The last time I visited our local university I was surprised to find a Centre of Confucian Studies had been established there.

Sadly I have thrown out most of the books I owned during my life, but there is one small pamphlet I have kept for over 40 years. It is entitled Confucius - “Sage" of the Reactionary Classes by Yang Jung-kuo. It was published by the Foreign Languages Press in “Peking” in 1974. It is perhaps the best assessment of the way an ideology works to maintain class rule I have ever read. Appendix I gives a few extracts.

In the first chapters Yang sets the historical stage as background for Confucius' life and actions. He explains that during the Spring and Autumn Period when Confucius lived there was a wide-spread class struggle taking place between advocates of two different modes of production. The older mode of production was based on private ownership of the land worked by slave labour, similar to the system which prevailed at the time of the Greek city-states and the Roman Empire. The new system was also based on private ownership of the land, but the land was to be rented to free peasants who would work the land and pay the owner in kind. This is similar to the feudal system which appeared in Europe around the time of Charlemagne (742 - 814). Eventually the slave-owning system disappeared, but the important fact about Confucius was his implacable opposition to this change.

Like Plato, who attacked the limited democratic system in Athens, Confucius did not influence events by political action but through his writings in which he developed a reactionary ideology calculated to reinforce class rule of the slave owners. The irony of Confucius' efforts is that his ideology was later adopted by the feudal land-owners to defend their own system from change. In another similarity with Plato, Confucius distinguished between “superior men” and “mean men”. Superior men were “broad minded (Shu Erh) and need not concern themselves with the necessities of life. Their sole concern was the so-called tao or Way.” By contrast, the mean men “led an animal existenced, miserable to the core and burdened with cares, the leisure and contentment of the superior men was unknown to them. They worried all day long about their livelihood.”(17)

Just as the feudal landholders could use the Confucian ideology to defend their rule, it is easy to see how the new rulers of China in the CCP can do the same. They are the new superior men, and we all know who the mean men are, don't we? They are the millions of workers trying to survive in the neo-liberal heaven created in the People's Republic of China since the death of Mao.

This article is one part of four articles on Chinese "Socialism"

China's State Controlled Capitalism is Not Very Different From Capitalism in the West

The Damage Caused by China's “Socialism” to Workers Around the World

China's“Socialist” Investment in Australia is No Different from that of Other Capitalist Wolves



Confucius lived at the end of the Spring and Autumn Period, at a time when the tribal-slave-holding state of Chou Dynasty was collapsing.(p.1)
Under tribal slavery, the slaves not only lived worse than beasts of burden, but their very lives were in the hands of the slave-owners, who could put them to death at will. When a slave-owner died, many slaves were killed as human sacrifice, the number sometimes reaching several hundred at one time.(p. 2)
Where there is oppression, there is bound to be resistance. Whether in the Yin or Chou Dynasty, under the ruthless rule of tribal slave-owners the slaves continuously put up resistance. (p. 3)
By the time of the Spring and Autumn period, not only had the Chou kings become rulers in name only as result of the slaves' continual escapes and revolts, but the rule in the various vassal states was also quite unstable.(p.5)
(Yang then explains that senior officials began to introduce a new system because of the anarchy caused by slave revolts and killing of slave-owners. Some, such as the house of Chu of Lu state, changed its methods to respond to the new conditions.)
In dealing with the (land) holdings he received, Chi Sun acted according to the new situation and freed the slaves allotted to him, renting land to them to till as tenants.(p. 6)
The slaves were rebelling, and the new rising feudal land-lord forces were taking the offensive. Pounded by the tide of history in the stream of great social change, the slave owning aristocrats were in desperate straits and on their way out.(p. 7)
Confucius entered officialdom in the state of Lu, not however becoming a senior official until he was 52, when he presided over justice and acted in the capacity of prime minister. But Confucius' ecstacy in his official career was short-lived, for he held the position only three months.(p.10-11)
As justice official for the state of Lu, Confucius modelled himself in every action after Duke Chou, who was a harsh and vicious official. After only seven days in office as acting prime minister he had Shaocheng Mao, a reformer in the state, executed.
How did Confucius justify this verdict against Shaocheng Mao? According to him, anyone guilty of the following “crimes” should be put to death:
Understanding the changes of things and launching out on venturesome acts.
Not following the orthodox ways prescribed by the slave system, but stubbornly taking the path of so-called reform.
Talking glibly about the reasons for such reform.
Knowing too much about the decadent and unstable phenomena occurring under the rule of the slave-owners.
Using stern, just words to describe why the slave system should be opposed.(p. 11)



People may not realise that in the 1960s and 1970s during the anti-Vietnam war period, there was a considerable interest on the left in the recent Chinese Revolution. One widely read book about China was Fanshen by William Hinton (1919-2004), published in 1966. In 1948 Hinton was working for the United Nations as a tractor-technician, providing training in modern agricultural methods in rural China.

“When the communist party liberated the province in which he was working in 1948, he asked to join the university-staffed land reform work team in the village of Long Bow on the outskirts of Changzhi. By 1948, his then-wife Bertha Sneck had also joined him in China. Hinton spent eight months working in the fields in the day and attending land reform meetings both day and night, and during this time he took careful notes on the land reform process.”

When Hinton returned to the US in 1953 his papers were seized, he was hounded by the FBI, and blacklisted from any employment. In the end he turned to farming a plot of land he acquired by inheritance. When he finally won a legal battle to recover his papers he began writing his book Fanshen. It was

“a documentary account of the land reform in Long Bow village in which he had been both observer and participant. After many mainstream U.S. publishers had turned it down, it was published in 1966 by Monthly Review Press and was a success, selling hundreds of thousands of copies, with translations in ten languages. In the book, Hinton examines the revolutionary experience of the Long Bow village, painting a complex picture of conflict, contradiction and cooperation in rural China. After the death of Edgar Snow, Hinton became the most famous American sympathetic to the People's Republic of China, and he served as the first national chairman of the US China Peoples Friendship Association from 1974-1976.”(19)

Like many on the left at the time he rejected the “reforms” introduced by the Communist Party after the death of Mao.

“Hinton cooled toward official policy as market reforms under Deng Xiaoping moved away from the type of socialism originally associated with Mao Zedong. Eventually he wrote Shenfan (read as the opposite of Fanshen) and The Great Reversal, and became an outspoken opponent of the socialist market economy ("socialism with Chinese characteristics") and Chinese economic reform that the CPC continues today.“(20)

In case people do not realise the extent of his writing on China, I will reproduce a list of his works from Wikipedia:

1966, Fanshen: A Documentary of Revolution in a Chinese Village, Monthly Review Press.
1970. Iron Oxen; a Documentary of Revolution in Chinese Farming. New York: Monthly Review Press.
1969. "Fanshen" Re-Examined in the Light of the Cultural Revolution. Boston, MA: New England Free Press.
1972, Hundred Day War: The Cultural Revolution at Tsinghua University, Monthly Review Press.
1972, Turning Point in China: An Essay on the Cultural Revolution, Monthly Review Press.
1984, Shenfan, Vintage.
1989, The Great Reversal: The Privatization of China, 1978-1989, Monthly Review Press.
1995, Ninth Heaven to Ninth Hell: The History of a Noble Chinese Experiment (with Qin Huailu and Dusanka Miscevic), Barricade Books.
2003, "Background Notes to Fanshen", Monthly Review. 55.
2006, Through a Glass Darkly: American Views of the Chinese Revolution, Monthly Review Press.

In 2004 Martin Hart-Landsberg and Paul Burkett wrote a book entitled China and Socialism: Market Reforms and Class Struggle, which they summarised in an article “Introduction: China and Socialism” published by Monthly Review. They summarised their conclusion in the book as follows:

“As we will argue in this book, it is our position that China’s market reforms have led not to socialist renewal but rather to full-fledged capitalist restoration, including growing foreign economic domination. Significantly, this outcome was driven by more than simple greed and class interest. Once the path of pro-market reforms was embarked upon, each subsequent step in the reform process was largely driven by tensions and contradictions generated by the reforms themselves. The weakening of central planning led to ever more reliance on market and profit incentives, which in turn encouraged the privileging of private enterprises over state enterprises and, increasingly, of foreign enterprises and markets over domestic ones.”(21)

At the end of their article they produced a list of six authors who, like William Hinton, were critical of developments in China from a Marxist perspective. The list is reproduced below.

Questions about the economic system or relations of production in China cannot be settled by counting books and articles on each side of the debate. Rather my point is to show that serious doubts about the direction of the post-Mao reforms existed virtually from day one by people who were well acquainted with events in China and sympathetic with the Chinese Revolution up to that time. In the 21st century, where we are encouraged to live in the moment and think that the past does not exist, people can overlook the fact that it still might have some merit when it considers issues we still care about today. This question is not new. Intellectual history is the story of reinventing the wheel with new treads each time it comes around.

List of six authors who were critical of developments in China from a Marxist perspective:

Maurice Meisner, The Deng Xiaoping Era: An Inquiry into the Fate of Chinese Socialism, 1978–1994 (New York: Hill and Wang, 1996)
Robert Weil, Red Cat, White Cat: China and the Contradictions of “Market Socialism” (New York: Monthly Review Press, 1996)
Gerard Greenfield and Apo Leong, “China’s Communist Capitalism: The Real World of Market Socialism,” in Leo Panitch (ed.), Socialist Register 1997: Ruthless Criticism of All That Exists (New York: Monthly Review Press, 1997)
Barbara Foley, “From Situational Dialectics to Pseudo-Dialectics: Mao, Jiang, and Capitalist Transition,” Cultural Logic (2002),
Liu Yufan, “A Preliminary Report on China’s Capitalist Restoration,” Links, No. 21 (May–August 2002)
Richard Smith “Creative Destruction: Capitalist Development and China’s Environment,” New Left Review 222 (March–April 1997)
Eva Cheng, “China: Is Capitalist Restoration Inevitable?,” Links 11 (January–April 1999).


1. David Harvey, A Brief History of Neoliberalism, Chapter 5 "Neoliberalism ‘with Chinese Characteristics’", Oxford University Press, 2007,

2. Ibid.

3. Martin Hart-Landsberg and Paul Burkett, "China and Socialism: Introduction",

4. Ibid.

5. David Harvey, A Brief History of Neoliberalism.

6. Martin Hart-Landsberg and Paul Burkett, "China and Socialism: Introduction".

7. Alvin Y. So and Yin-wah Chu, "The transition from Neoliberalism to State Neoliberalism in China at the turn of the 21st Century",

8. Ibid.

9. Phillip Pan, "China Accelerates Privatization, Continuing Shift from Doctrine",

10. Martin Hart-Landsberg and Paul Burkett, "China and Socialism: Introduction".

11. David Harvey, A Brief History of Neoliberalism.

12. "Shanghai Stock Exchange",

13. "China QFII quota hits $99.5b",

14. "China issues guideline to deepen SOE reforms",

15. Alvin Y. So and Yin-wah Chu, "The transition from Neoliberalism to State Neoliberalism in China at the turn of the 21st Century".

16. "Confucianism in China Today",

17. Yang Jung-kuo: Confucius -“Sage” of the Reactionary Classes, Peking, Foreign Languages Press, 1974. (p.16-17) Available online:

18. "William H. Hinton",

19. Ibid.

20. Ibid.

21. Martin Hart-Landsberg and Paul Burkett, "China and Socialism: Introduction".

22. Ibid
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