Governing the markets: Chinese style of Capitalism

Sunday, January 4, 2009

The end of Chinese civil war in 1949 heralded the socialistic revolution under the leadership of Mao Zedong. Mao's Cultural Revolution followed by series of dramatic economic failures brought China's membership of the United Nations, and permanent membership of the Security Council. Socialism in China (1949-78) was pursued under very unfavorable conditions. Soon after Mao's death in 1976, Deng Xiaoping quickly seized the power and led the economic reforms of significant magnitude and scripted the end of 'Maoist' path of development in China. This was the beginning of China's 'mixed economy' "with an increasingly open market environment, a system termed by some as "market socialism". "Next 30 years (1978-2008) of capitalist reforms eclipsed the 29 years (1949-78) of struggle for socialism [EPW, December 27, 2008]."

"What China has witnessed over the last 30 years is the development of capitalism in the name of building 'socialism with Chinese characteristics'."
  • China's "market reforms" began in agriculture with the process of de-collectivisation. The communes were dismantled and the peasants exposed to market forces under the "household responsibility system".
  • Industrial enterprises in the communes were turned into "township and village enterprises", the market-oriented public enterprises under the purview of local governments based in townships and villages.
  • Deng Xiaoping's "open door" policy resulted in dramatic increases in the flow of foreign trade and foreign direct investment (FDI), and the development of special economic zones (SEZs).
  • After 1984, administered pricing gave way to market pricing, i.e. market alone became the sole force to control prices.
  • In 1992, the mass privatization of state-owned enterprises got underway.
  • In 2002, Capitalists were allowed to become members of Chinese Communist Party (CCP).
The period 1978-2002 saw 10% economic growth and the share of exports in GDP reached 35% from just 5% in1978. During this period China was "willing to sacrifice anything in the pursuit of profit", it even privatized the healthcare system! the inequality voices raised during the revolutionary period (until Mao's death in 1976) "were de-politicised in the sense that grievances have been channeled towards the legal system". In 2002 Chinese leadership realized that, "the market mechanism is not only an accelerator of economic growth, but also a double-edged sword that can recklessly cut ethical ties between individuals and various social groups and transform people into creatures who pursue maximum self interest[Shaoguang Wang, EPW, December 27, 2008]." Thus, it was perceived that, "market can serve only as a means to improve people's welfare but not as a goal in itself."

The “grasping the large and letting the small go” policy of 1997 brought significant changes in the central policy. These reforms included efforts to corporatize state-owned enterprises (SOEs) and to downsize the state sector [wiki]."(The “grasping the large” indicated that policy-makers should focus on maintaining state control over the largest state-owned enterprises. “Letting the small go” meant that the central government should relinquish control over smaller state-owned enterprises). "The current Chinese leadership, Hu Jintao - Wen Jiabo, upon coming to power in 2002, put forward a new development paradigm calling for building a "Harmonious Society" with more balanced development across regions and sectors. The paradigm, laid out in detail in the 11th Five-Year Plan (2006-2010) stressed sustainable growth, "putting people first", and making development pro-poor and pro-rural [Carl Riskin, EPW, December 27, 2008]."

It is interesting to note here that, when some of the smartest economists around the world were contemplating about the possible global economic crisis, as we are seeing now, China was busy regulating the market forces for it's own sake and to build "Harmonious Society". China's huge foreign exchange reserves and it's ability to arrest capitalistic forces in a balanced manner saved it from current global crisis. More over "China is now being courted to inject funds into distressed US financial institutions" in order to help US to overcome the crisis!

China's revolutionaries like Mao Zedong contemplated socialistic state, but China never became a truly socialistic state (Cultural Revolution and later Deng Xiaoping's rule dismantled socialistic framework in China). China exploited capitalistic forces for higher profits but never became a capitalistic country. China's Communist ideology was never truly Communist as it was originally theorized by Marxists. It seems to me that, "Communist China" represents both socialistic and capitalistic tendencies with "Chinese style and characters"!

This post is based on special articles carried in Economic and Political Weekly, December 27, 2008 issue.

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This work by Manjunath Singe is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 India License. The views and opinions expressed in this work are strictly those of the author and do not represent his employer's views in anyway.