Defend, Extend Gains of 1949 Revolution!
For Workers Political Revolution to Oust Stalinist Bureaucracy!

Defeat Imperialist Drive for Counterrevolution!

For a China of Workers and Peasants Councils in a Socialist Asia!

Reprinted from Workers Vanguard Nos. 814 and 815, 21 November 2003 and 5 December 2003


The People’s Republic of China (PRC) was born of the 1949 Revolution which, despite profound bureaucratic deformations, was a social revolution of world-historic significance. Hundreds of millions of peasants rose up and seized the land on which their forebears had been cruelly exploited from time immemorial. The rule of the murderous warlords and bloodsucking moneylenders, of the rapacious landlords and wretched bourgeoisie was destroyed.

The creation of a centrally planned, collectivized economy laid the basis for an enormous leap in social progress and China’s advance from abject peasant backwardness. The revolution enabled women to advance by magnitudes over their previous miserable status, symbolized by the barbaric practice of footbinding. A nation which had been ravaged and divided by foreign powers for a century was unified and freed from imperialist subjugation.

However, the 1949 Revolution was deformed from its inception under the rule of Mao Zedong’s Chinese Communist Party (CCP) regime, which represented a nationalist bureaucratic caste resting atop a collectivized economy. Unlike the Russian October Revolution of 1917, which was carried out by a class-conscious proletariat guided by the Bolshevik internationalism of Lenin and Trotsky, the Chinese Revolution was the result of peasant guerrilla war led by Mao’s Stalinist-nationalist forces. Patterned after the Stalinist bureaucracy that had usurped political power from the proletariat in the USSR, Mao’s regime preached the profoundly anti-Marxist notion that socialism—a classless, egalitarian society based on material abundance—could be built in a single country. In practice, “socialism in one country” in China, as in the USSR of Stalin and his heirs, meant opposition to the perspective of workers revolution internationally and accommodation to world imperialism.

In particular, China’s alliance with American imperialism against the Soviet Union, begun under Mao in the early 1970s and continued by his successor, Deng Xiaoping, contributed to the eventual destruction of the USSR through capitalist counterrevolution in 1991-92. This was a historic defeat for the international working class and oppressed peoples throughout the world. The post-Soviet period has seen the increased pressure of world, especially American, imperialism —economic, political and military—on China. Thus the Pentagon has been actively pursuing plans for an effective nuclear first-strike capacity against China’s small nuclear arsenal, a strategy openly proclaimed by the Bush gang in Washington.

The International Communist League stands for the unconditional military defense of the Chinese deformed workers state against imperialist attack and capitalist counterrevolution. The Chinese working class must sweep away the Stalinist bureaucracy, which has gravely weakened the system of nationalized property internally while conciliating imperialism at the international level. We stand for a proletarian political revolution to place political power in the hands of workers and peasants councils. The urgent task facing the Chinese proletariat is to build a Leninist-Trotskyist party as part of a reforged Fourth International to prepare and lead this political revolution, standing at the head of the toiling masses and directing the spontaneous and localized struggles of the workers toward the seizure of political power.

Is the CCP Restoring Capitalism in China?

Ever since the Deng regime introduced market-oriented economic “reforms” in the early 1980s, an increasingly influential current of Western bourgeois opinion has maintained that the Communist Party itself is gradually restoring capitalism in China while keeping a tight grip on political power. This position was widely and loudly trumpeted late last year when the 16th Congress of the CCP legitimized party membership for capitalist entrepreneurs. “China Turns Its Back on Communism to Join Long March of the Capitalists” was a typical headline in the Western press, in this case that of the London Guardian (9 November 2002).

In fact, this congress did not introduce a significant change in either the social composition of the CCP, which after all has 66 million members, or its functional ideology. According to an official survey, of China’s two million private business owners 600,000 are party members and have been for some time. The overwhelming majority of these were longtime CCP managerial cadre who took over the small state-owned enterprises they were running when these were privatized over the past several years.

Some groups that falsely claim to be Trotskyist have embraced the now-conventional wisdom in Western bourgeois circles that “capitalist roadism” has decisively triumphed among those governing China. Commenting on the 16th CCP Congress, the British-centered tendency led by Peter Taaffe wrote: “China is on the road to complete capitalist restoration, but the ruling clique are attempting to do this gradually and by maintaining their repressive authoritarian grip” (Socialist, 22 November 2002). By labeling China’s government an “authoritarian” capitalist-restorationist regime, the Taaffeites and their ilk can justify supporting imperialist-backed anti-Communist forces in China in the name of promoting “democracy,” just as they supported Boris Yeltsin’s “democratic” counterrevolution in the USSR in 1991.

In maintaining that China continues to be a bureaucratically deformed expression of proletarian state power, we do not deny or minimize the growing social weight in China of both the newly fledged capitalist entrepreneurs on the mainland and the old, established offshore Chinese bourgeoisie in Taiwan and Hong Kong. Many a top government and/or party official has a son, younger brother, nephew—or, as in the case of Chinese president Hu Jintao, son-in-law—who’s a private businessman.

Nonetheless, the political power of the main body of the Beijing Stalinist bureaucracy continues to be based on the core collectivized elements of China’s economy. Furthermore, the economic policies of the CCP regime are still constrained by fear of social—especially working-class—unrest which could topple it. This came close to happening in 1989 when student-centered protests for political liberalization and against corruption triggered a spontaneous workers revolt that was then suppressed with great bloodshed by regime-loyal army units. (For an extensive account of this incipient proletarian political revolution, see “Ten Years After Tiananmen—China: Fight Capitalist Restoration! For Workers Political Revolution!” WV Nos. 714 and 715, 28 May and 11 June 1999.)

A capitalist counterrevolution in China (as in East Europe and the former USSR) would be accompanied by the collapse of Stalinist bonapartism and the political fracturing of the ruling Communist Party. The economic policies of the Beijing Stalinist regime that encourage capitalist enterprise (and the corresponding rightward shifts in the bureaucracy’s formal ideological posture) have increasingly strengthened those social forces that will give rise to imperialist-backed, openly counterrevolutionary factions and parties when the CCP can no longer maintain its present monopoly of political power. This can be clearly seen today in the capitalist enclave of Hong Kong, the one part of the PRC where bourgeois oppositional parties exist. Last summer, Hong Kong’s Democratic Party organized mass, anti-Communist mobilizations openly supported by the Bush administration in Washington and its junior partners in London (see “Hong Kong: Expropriate the Bourgeoisie!”, WV No. 814, 21 November 2003).

Sujian Guo, a right-wing Chinese émigré intellectual in the U.S., published an interesting article in the Journal of Contemporary China (August 2003) dissenting from the view that China has already become or is fast becoming capitalist (“The Ownership Reform in China: What Direction and How Far?”). According to a brief biographical sketch, Guo was a “former policy analyst at the Party Central Committee in China.” Given his present ideological bias, Guo minimizes the growth of capitalist elements in China’s economy and ascribes to the top CCP leaders a continuing belief in socialism, at any rate in the historical long run. But this anti-Communist advocate of “free market” capitalism understands a basic truth which most leftists, including self-described Marxists, do not:

“How to privatize such a huge estate of state ownership within the framework of the existing political system and structure is really problematic and technically unworkable. The experience of other former communist countries has shown that there is no single case of making privatization successful with the communist party remaining in power and its political system intact.” [emphasis in original]

The leaders of the CCP, too, looked at what had happened in the East European “People’s Democracies” and the former USSR in the late 1980s and early 1990s, drew their own lessons and acted accordingly. They also drew some lessons from the 1989 Tiananmen revolt that threatened their own downfall. They were determined there would be no political liberalization even at the academic/intellectual level. The regime of Jiang Zemin, who succeeded Deng when the latter died in 1997, was able to prevent any organized factional opposition in what historically has been a quite fractious ruling Stalinist party. There appears to be no significant dissident movement or milieu on the mainland either to the right or left of the central CCP leadership.

The Latest Illusion of Chinese Stalinism

China’s high rate of economic growth in recent years—moreover, amid a generalized world capitalist recession—has produced a certain triumphalist mood among the CCP leadership and cadre and affiliated intelligentsia. One would certainly encounter a very different mood among the millions of workers laid off from state-owned enterprises, impoverished migrants from the countryside and poor peasants barely eking out a living toiling on tiny plots with rudimentary equipment. But among Chinese intellectuals of mainstream political views one increasingly hears the notion that their country has somehow found a middle way between the anarchy of “free market” capitalism and the rigidities of the old-style Stalinist “command economy.”

In their younger days, Jiang Zemin, Hu Jintao et al. doubtless subscribed to the Maoist-Stalinist doctrine that China was “building socialism” with its own unaided efforts. They now view that as a product of “dogmatic thinking” and see themselves as hardheaded realists confronting and dealing with the rest of the world as it actually is. Yet Jiang, Hu and their cohorts are driven by delusions of grandeur exceeding the wildest imaginings of Chairman Mao.

The present CCP leaders believe that they can modernize China, transforming it into a great world power—indeed, the global superpower of the 21st century—through ever greater integration into the world capitalist economy. They truly believe they can control and manipulate Citibank, the Deutsche Bank and the Bank of Tokyo-Mitsubishi to help build up China so that in a generation or two it will surpass the United States, Germany and Japan. Believing they are transforming China into a global superpower, they are actually clearing the path for returning China to the pre-revolutionary era of untrammeled imperialist subjugation.

The growth of imperialist belligerence toward China since the collapse of the Soviet Union is evidence enough that the world’s bourgeoisies will not countenance the Beijing bureaucracy’s great power ambitions. Over the past decade, the Pentagon has redeployed a significant proportion of its military forces to the Pacific Rim region, while pushing ahead with plans for a “theater missile defense.” As a result of its incursion into Afghanistan and Central Asia, as well as a renewed military presence in the Philippines and elsewhere, the U.S. has significantly strengthened its military vise around China. In signing on to the U.S.-led “war on terror,” Beijing has only encouraged U.S. imperialism in its counterrevolutionary drive. The Chinese leadership has also joined the crusade against North Korea’s nuclear weapons program. This is a nationalist betrayal that undermines the Chinese deformed workers state itself; capitalist counterrevolution in North Korea would only embolden the forces of capitalist restoration targeting China.

To be sure, the ruling Chinese Stalinists are not simply supine in the face of U.S. military encirclement: witness their vigorous response to Washington’s spy plane provocation two years ago. The CCP regime has also resisted American demands to impose an economic embargo against the North Korean deformed workers state. But the Stalinists’ pipe dream that there can be “peaceful coexistence” with imperialism can only lull the vigilance of the Chinese masses and undermine the defense of their workers state.

The alternative to a bloody, imperialist-backed counterrevolution is proletarian political revolution. For the past several years, there have been large-scale and widespread popular protests and labor struggles, especially over the massive layoffs in state-owned industrial enterprises. To date, through a combination of repression and concessions, the regime has managed to contain these at the level of localized economic actions. Nonetheless, at its base China is a profoundly unstable society. Sooner or later, the explosive social tensions will shatter the political structure of the ruling bureaucratic caste. And when that happens, the fate of the most populous country on earth will be starkly posed: proletarian political revolution to open the road to socialism or capitalist enslavement and imperialist subjugation.

The outcome of that momentous battle will be of decisive significance for the working masses not only of China but of the entire world. As with the counterrevolutionary destruction of the Soviet Union, the restoration of capitalism in China would further embolden the imperialists to lash out against their own workers and against the semicolonial peoples everywhere. It would also heighten rivalries between the imperialists over who would exploit China, bringing the planet that much closer to a new interimperialist world war. This underscores the obligation of the international proletariat to stand in defense of the gains of the Chinese Revolution. On the other hand, a political revolution carried out under the banner of proletarian internationalism would truly shake the world.

A government of workers and peasants councils would expropriate without compensation the hundreds of billions of dollars in productive wealth owned by Chinese capitalists—mainland and offshore —and by Western and Japanese investors. It would re-establish a centrally planned and managed economy—including a state monopoly of foreign trade—governed not according to the arbitrary “commandism” of a closed-in bureaucratic caste (which produced such disasters as Mao’s “Great Leap Forward”) but by the widest proletarian democracy.

Such measures would provoke intense imperialist hostility, both militarily and economically (e.g., an economic embargo). But among the workers and oppressed internationally, including in the imperialist heartlands, they would meet with huge sympathy and solidarity.

Imbued with Stalinist preachings of “socialism in one country,” even the most leftist Chinese workers may view the prospect for socialist revolution in the advanced capitalist countries as remote or utopian. But a proletarian political revolution in China would shatter the “death of communism” ideological climate propagated by the bourgeoisie since the destruction of the Soviet Union. It would radicalize the proletariat of Japan, the industrial powerhouse of East Asia. It would spark a fight for the revolutionary reunification of Korea—through political revolution in the beleaguered North and socialist revolution in the South—and reverberate among the masses of South Asia, Indonesia and the Philippines bled white by imperialist austerity. It would revive the working people of Russia who have been ground down by a decade of capitalist immiseration.

Only through the overthrow of capitalist class rule internationally, particularly in the imperialist centers of North America, West Europe and Japan, can the all-round modernization of China be achieved as part of a socialist Asia. It is to provide the necessary leadership for the proletariat in these struggles that the ICL seeks to reforge Trotsky’s Fourth International—world party of socialist revolution.

The Core Collectivist Elements of China’s Economy

The CCP leadership officially describes China as a “socialist market economy.” It is the “socialist” (i.e., collectivist) aspects which are responsible for the positive economic developments in China in recent years: the vast expansion of investment in infrastructure (e.g., urban construction, canals, railroads and the giant Three Gorges Dam project), the ability of China to have navigated successfully through the 1997-98 East Asian financial/economic crisis and then a generalized world capitalist recession. And it is the market aspects of China’s economy which are responsible for the negative developments—the ever-widening gap between rich and poor, the immiseration of a large and growing fraction of the populace, tens of millions of workers laid off from state-owned enterprises, the army of impoverished migrants in the cities who can no longer make a living in the countryside.

In China today, it is the core collectivized elements of the economy which continue to be dominant, though not in a stable, coherent manner due to an ever-shifting interaction between contradictory institutional arrangements and government policies. In 2001, state-owned and partly state-owned enterprises (shareholding corporations) accounted for 57 percent of the gross value of China’s industrial output (China Statistical Yearbook [2002]). But this simple statistical figure obscures the strategic centrality of state-owned industry. The private (including foreign-owned) sector consists for the most part of factories producing light manufactures by labor-intensive methods. Heavy industry, the high-tech sectors, modern armaments production are overwhelmingly concentrated in state-owned enterprises. It is these enterprises that have enabled China to put a man in space. Far more importantly, it is state-owned industry that has enabled China to build an arsenal of nuclear weapons and long-range missiles to ward off the American imperialists’ threat of a nuclear first strike.

All major banks in China are state-owned. Almost the entirety of household savings—estimated at one trillion dollars—is deposited in the four main state-owned commercial banks. Government control of the financial system has been key to maintaining and expanding production in state-owned industry and to the overall expansion of the state sector.

Between 1998 and 2001, government spending in China increased from 12 to 20 percent of the country’s gross domestic product. The largest and fastest-growing component of government expenditure has been investment in infrastructure, which increased by 81 percent over these three years. Moreover, this has been happening at a time when the entire capitalist world—including the wealthiest countries in North America and West Europe —has been pursuing fiscal austerity. Total planned expenditure to construct a network of canals for irrigation purposes from the Yangtze River to the Yellow River in the north is $59 billion. Another $42 billion is to be spent on expanding the lines of China’s state-owned railroad system. By comparison, last year direct foreign investment in China from all sources totaled $53 billion.

Continued state ownership of the financial system has enabled the Beijing regime up to now to effectively (though not totally) control the flow of money-capital in and out of mainland China. China’s currency, the yuan (also called the renminbi) is not freely convertible; it is not traded (legally) in international currency markets. The restricted convertibility of the yuan has kept China insulated from the volatile movements of short-term capital (“hot money”) which periodically wreak havoc on the economies of Third World neocolonial countries from Latin America to East Asia.

Furthermore, over the past year the Beijing regime has maintained an increasing undervaluation of the yuan (in “free market” terms), much to the displeasure of American, European and Japanese capitalists. A second-level capitalist-imperialist country like Britain could not have controlled the exchange rate of its currency in world markets as China has done. Within months if not weeks, speculative money-capital would have flooded into the City of London, forcing an upward revaluation of the pound regardless of what the Blair government wanted or did.

It is precisely the core collectivist elements of China’s economy described above which the forces of world imperialism want to eliminate and dismantle. Their ultimate goal is to reduce China to a giant sweatshop under neocolonial subjugation. Jonathan Anderson, the China “expert” for the Wall Street investment bank Goldman Sachs, asserts: “The bottom line is that China is becoming a manufacturing hub for the rest of the world in low-end, labour-intensive goods. Contrary to current fears, the rest of the world is becoming a manufacturing hub for China in high-end, capital-intensive goods” (London Financial Times, 25 February). The man from Goldman Sachs is here projecting onto China’s present economic reality Wall Street’s plans for that country’s future.

The Beijing bureaucracy’s abandonment of the strict state monopoly of foreign trade serves, however, to facilitate Wall Street’s plans. Despite its rapid growth in recent years, the Chinese economy is backward relative to even the lesser capitalist-imperalist powers. There is a dramatic amount of new construction currently underway in Beijing, with cranes visible virtually everywhere. But as a comrade who recently visited China told Workers Vanguard: “The construction crews are always very large, with not much in the way of earth-moving equipment other than wheelbarrows and picks. Once at the edge of Beijing, I saw about 30 guys working to put up a three-foot brick wall with two horse-drawn carts full of bricks.”

While China’s exports to the U.S. and other Western countries continue to increase at record levels, these largely consist of low-wage, low-value light manufacture and consumer goods like clothing, toys and household appliances. As Jonathan Anderson points out, China’s increase in gross industrial output between 1993 and 2002—from $480 billion to $1,300 billion—was nearly completely offset by the increase in its gross purchases of industrial products, i.e., machinery and capital equipment.

Against the economies of the U.S., Japan and West Europe, Chinese industry, with its relatively low productivity of labor, cannot compete on the world market. What Trotsky wrote in refuting the Stalinist doctrine of “socialism in one country” in the Soviet Union applies with full force to China today:

“The capitalist world shows us by its export and import figures that it has other instruments of persuasion than those of military intervention. To the extent that productivity of labor and the productivity of a social system as a whole are measured on the market by the correlation of prices, it is not so much military intervention as the intervention of cheaper capitalist commodities that constitutes perhaps the greatest immediate menace to Soviet economy.”

The Third International After Lenin (1928)

The main weapon available to a nationally isolated and relatively economically backward workers state against the intervention of cheaper goods is the state monopoly of foreign trade—i.e., the strict control of imports and exports by the government (for a fuller treatment of this question, see “Workers Protests Shake China,” Part Two, WV No. 782, 31 May 2002). But the ultimate answer to China’s economic backwardness and the only road to a socialist—i.e., classless, egalitarian—society lies in world socialist revolution and China’s integration into an internationally planned economy.

Imperialists’ Economic Strategy for Capitalist Restoration

Let us look at the program of further economic “reforms” in China put forward by the representatives and spokesmen for world, centrally American, imperialism. That program was summed up in a report on China a few years ago by the Washington-based World Bank: “The most important recommendation is a change in the role of government from controller and producer to architect of a more self-regulating and self-adjusting type of system.”

First and foremost is the “recommendation” that the state-owned banks cut off credit to loss-making state-owned enterprises and impose higher interest rates and stiffer repayment terms on profit-making enterprises. Such a “tight money” policy on the part of China’s banks would throw millions more workers onto the streets. And it would permanently dismantle a large part of China’s modern, capital-intensive producer goods industry (e.g., machine tools, heavy electrical equipment, agricultural machinery, construction equipment).

At a more fundamental level, Western and Japanese capitalists want to replace China’s state-owned banks with their own. Opening up China’s financial system to foreign banks would lead to a massive outflow of funds since China’s banks cannot offer the higher rates of return available in international money markets. A large fraction of the economic surplus generated in China would be rechanneled into the banks of Wall Street, the City of London, Frankfurt and Tokyo. This money would then be used to purchase corporate and also government securities in the American, European and Japanese imperialist states. The savings of China’s workers and rural toilers would literally help to pay for the Pentagon’s nuclear missiles aimed at China! As it is, the treacherous Beijing Stalinist bureaucracy—and this is a real crime against the Chinese people—is now purchasing U.S. Treasury bills with its large foreign-exchange reserves and has promised to purchase more.

In the past few years, the agencies of imperialist finance capital such as the International Monetary Fund have “advised” the Chinese government to reduce its budget deficit by cutting back especially on investment in infrastructure. Such a move toward fiscal austerity would destroy the livelihood of many of the poorest, most downtrodden of China’s toilers. Urban construction in Shanghai, Beijing, etc. mainly employs migrants from the countryside. The big interior projects (canal building, laying railway track) employ impoverished peasants and rural villagers. Furthermore, cutting back such projects would retard and reverse China’s economic development. The extension of the railway system, for example, is absolutely essential to economically link the wealthier coastal provinces with the more backward regions of central and western China.

In recent months the main economic demand made by American, European and Japanese ruling circles on the Chinese government has been to revalue the yuan upward. By increasing the price of China’s manufactured goods in world markets, such a move would sharply reduce China’s export earnings and volume. Many private as well as state-owned enterprises would be forced to lay off workers, reduce production and in some cases suffer bankruptcy.

Behind the current pressure from the American, West European and Japanese bourgeoisies is a more basic assault on China’s state-owned financial system. The imperialists want to force the Beijing regime to make the yuan fully convertible in order to open China to unrestricted financial penetration by the banks of Wall Street, Frankfurt and Tokyo.

Privatization: Appearance and Reality

Over the past two decades a large fraction of state-owned industry—whether measured by number of enterprises, labor force or volume of production—has been privatized. Most small enterprises were simply sold off to individuals, typically the managers who had been running them. The larger enterprises, however, were “privatized” through a shareholding scheme. When, a decade or so ago, China opened its first stock market, much of the Western bourgeois media hailed this as proof positive that “Communist” China had taken a decisive step on the road to capitalism. But what has actually happened?

Of the 1,240 companies listed on China’s two main stock exchanges, in some cases the government holds a majority of shares, in others a substantial minority. But even the latter remain effectively government-controlled because the CCP has retained a monopoly of political power. There is no workers democracy in China—but neither is there shareholders’ democracy. A disgruntled shareholder brash enough to organize a revolt to oust the incumbent management, typically politically well-connected CCP cadre, would likely find himself in a very bad place very rapidly.

Shareholders in China’s corporations do not have ownership rights in the Western capitalist sense. They have the right to income from their financial assets and they can sell their shares, if they are smart or lucky enough, for a net gain over the purchase price. But they cannot determine or even influence the management and corporate policies. These are determined by various and often conflicting political as well as economic pressures.

A clear example of this is Golden Summit, a cement-making enterprise in Leshan in the far western province of Sichuan. Formed in the late 1980s, Golden Summit was listed on the Shanghai stock exchange in the early 1990s. It turned out to be quite a profitable operation. In 1997, the company’s general manager, Gu Song, also served (in a fairly common arrangement) as deputy secretary of the Leshan CCP. In that dual capacity he arranged for Golden Summit to take over Dadu River Steel, a state-owned enterprise in the city which, however, was losing money. Obviously, this acquisition made no economic sense. Why then was it done? Because the workers at Dadu River Steel had staged violent protests over unpaid wages. So the local CCP leadership utilized the ample cash reserves of Golden Summit to damp down labor unrest in its bailiwick. Thus a managerial decision affecting the company’s financial condition was made on political, not economic grounds.

A recent book on China’s financial structure by two academic economists in Australia describes the real character of the shareholding corporations:

“The key problem in the case of China’s stock markets is that the high ownership concentration actually reflects the continuing dominance of state ownership in many listed companies.... Thus, a market for corporate control is nonexistent for the overwhelming majority of listed companies and it can be concluded that managers face only a limited threat of punishment for poor decision making from either ‘insiders’ or ‘outsiders.’ It should also be noted that the influence of the state runs even deeper than their dominant ownership position.”

— James Laurenceson and Joseph C.H. Chai, Financial Reform and Economic Development in China (2003)

The authors then cite a study showing that “the state’s representation on the board of directors of many listed companies far outweighed that which could be justified even on the basis of their sizeable ownership stake.”

Furthermore, China’s stock and also corporate bond markets still account for a very small fraction of total financial assets, which remain overwhelmingly concentrated in the state-owned banks. Thus shareholding corporations depend on bank loans for the bulk of their external financing. In short, the companies listed on the two major stock exchanges typically have the same management and similar financial arrangements as they did when they were wholly state-owned enterprises.

Someone might reasonably ask: that may be true today, but will it still be true tomorrow? The answer to that question will be determined by political conflict, not a change in this or that regulation governing China’s stock market.

Last summer foreign investors were allowed for the first time to purchase (within strict limits) the main class of shares (denominated in yuan) in China’s stock markets. A single foreign investor can own no more than 10 percent of the market capital of a company, all foreign investors combined no more than 20 percent. The first financial outfit to take advantage of this opportunity was the big Swiss investment bank UBS which bought, among other companies, shares in Baoshan Iron and Steel, China’s largest steel maker.

What would happen if UBS and other foreign banks were disappointed with the return on their investment in Baoshan? They probably would simply sell their shares, perhaps at a loss. But let us say that instead a group of Western banks bribed Chinese economic officials to support the ouster of Baoshan’s incumbent management and replace them with new managers favored by these banks. Such an attempt by Western financiers to effectively take over China’s largest steel maker would be a direct challenge to the political authority of the CCP regime. To maintain its authority, the Chinese government would have to prosecute the corrupted officials and take some kind of punitive measures against the foreign banks. If not, many managers of state-owned enterprises and banks would become paid agents of imperialist financiers and industrialists, the government would begin to lose its ability to carry out its own economic policies and the CCP would begin to disintegrate into an orgy of factionalism such as took place in the Soviet Communist Party during the Gorbachev era (1985-91).

But the factional disintegration of the Chinese Stalinist bureaucracy would also open up the political situation to the intervention of social forces from below, centrally the working class. One would likely see the formation of independent trade unions and factory committees, of left-wing groups and parties. In the end, Western, Japanese and offshore Chinese capitalists could find their present foothold in the People’s Republic of China destroyed by a proletarian political revolution.


The main structural change that has taken place in China’s economy over the past two decades is the way in which state-owned enterprises are financed. Under the old centralized planning system, enterprises whose costs for whatever reason exceeded their normal revenue received non-repayable grants from the industrial ministry overseeing them. Likewise, non-repayable grants were used to finance the expansion of enterprise production through retooling, the construction of a new department, etc.

When “market socialism” was introduced in the early 1980s, enterprises were supposed to become profit-maximizing and financially self-sufficient. External financing would be provided by loans from state-owned commercial banks, which were supposed to be repaid with interest. We do not know if Deng and the other initial architects of the “reform” program actually expected the system to work according to the new economic doctrine and corresponding policy guidelines. Predictably, the system did not work. Had all enterprises which did not and could not repay their bank loans been closed down, China would long since have become a complete economic disaster area. But that was not allowed to happen. Instead, in a totally unplanned, inadequate and haphazard way, “non-performing” bank loans were substituted for direct government financing.

Bank loans to loss-making as well as profit-making enterprises are routinely rolled over or even increased without any realistic expectation of repayment. Consequently, all major Chinese banks are technically “insolvent,” with “non-performing loans” exceeding income-generating assets. This situation has persisted for many years, since the government finances the banks which, in turn, finance the enterprises.

Thus in 1998-99 the central bank gave $200 billion to the main commercial banks in exchange for an equivalent amount of their “non-performing loans.” This enterprise debt was then shifted to government-owned Asset Management Companies (AMCs), which were supposed to collect a portion of them and/or sell off the delinquent enterprises to private buyers. Since then the AMCs have done little of the one or the other.

The relative stability of China’s financial system has rested on two main factors. One, everyone knows the government stands behind the banks. And two, private and especially foreign banks have not (yet) been allowed to compete with them. A report last year by Moody’s, the big American financial credit-rating agency, concluded: “While China’s banking system may technically be insolvent, abundant levels of liquidity act as a cushion against stress. The strong deposit levels further reflect public trust in the state banks.”

Knowledgeable spokesmen for Western imperialism recognize that the privatization and especially internationalization of the financial system is a necessary step in breaking the economic power of the Chinese Communist Party (CCP) regime. Earlier this year the London Economist (8 March)—a semi-official organ of British and American bankers—wrote:

“All Chinese banks are, directly or indirectly, state-run, and the government, local or central, interferes both in the appointment of managers and in lending. There is, therefore, no such thing as a market-driven, meritocratic Chinese bank. Without control, foreign investors will find it difficult to create one.

“The Chinese, however, have no intention of yielding control.”

As the Economist’s plaint indicates, foreign banks have to date been limited to the margins of China’s financial system, mainly in the foreign-trade sector. Needless to say, international finance capital has been pushing hard against those limits. For example, earlier this year the Wall Street giant Citibank was allowed to purchase 5 percent of China’s ninth-largest commercial bank. A joint credit card operation was then launched geared to China’s newly wealthy elite—capitalist entrepreneurs, top party and government officials, affluent petty-bourgeois types (engineers, academics). For Citibank, this is just the opening wedge in its campaign to penetrate ever more deeply into China’s financial system. “China is one of the last great frontiers in finance,” proclaimed Richard Stanley, head of Citibank’s operation in Hong Kong (Wall Street Journal, 15 September).

Jiang Zemin and his cohorts recognized that opening China’s financial system to foreign banks would likely have disastrous economic consequences, not least crippling the government’s ability to finance its own expenditures. Thus the agreement by which China joined the World Trade Organization (WTO) two years ago postponed “liberalization” of the financial sector until 2006. Only then is China supposed to allow foreign banks to compete on an equal footing with state banks. But what will actually happen three years hence will not be automatically determined by the schedule stipulated in the WTO agreement. It will be determined by social conflict within China and between China and the forces of capitalist imperialism. In recent months, economic conflicts between especially American imperialism and the Chinese bureaucratically deformed workers state have come to the fore.

The Battle over the Yuan

China’s currency, the yuan (or the renminbi), is not convertible on what bourgeois economists call the capital account of international transactions. Capitalist entrepreneurs in China as well as managers of state-owned enterprises can acquire foreign currency in exchange for yuan (after prior approval from the central bank) only to pay for imports and other trade-related expenses. Foreign currency acquired by mainland Chinese nationals is required to be transferred to the central bank in exchange for yuan.

In recent years, there has predictably been an increasing volume of illegal currency movements in and out of China, mainly by and through Hong Kong financiers. There is no accurate estimate of the magnitude of these illegal monetary flows, but they have not yet reached the point of seriously affecting the Chinese economy or the regime’s economic policies.

For a decade or so, China has pegged the yuan to the dollar. Since the dollar depreciated this year against the euro, the Japanese yen and most other currencies, the price of China’s manufactured exports fell sharply on the world market. Most experts in the field estimate that if the yuan were freely traded, it would appreciate from 20 to 40 percent against the dollar.

Some big American (as well as European and Japanese) capitalist outfits also benefit from the current undervaluation of the yuan. Over half of Chinese manufactured exports are produced in foreign-owned factories or joint ventures. Dell computer and Motorola are among the top ten exporting companies in China. On the other side of the Pacific, the giant discount retailer Wal-Mart absorbs 10 percent of China’s commodity exports to the U.S.

However, the main body of American manufacturing capitalists believe (and not without good cause) that they are being damaged by China’s “unfair” trade practices. Last spring Franklin Vargo, vice president of the National Association of Manufacturers, told a Congressional committee: “We must press China to end the manipulation of its currency and allow the yuan-dollar exchange rate to be determined by the market” (Business Week, 7 July). A bloc of mainly Democratic and some Republican Senators and Congressmen is pushing legislation to impose additional tariffs on Chinese imports to “offset” the undervaluation of the yuan. Moreover, all of the heavy guns of international finance capital—the heads of the U.S. and European Union central banks, the directors of the International Monetary Fund—have pummeled the Beijing regime to revalue its currency.

But on this issue the Chinese leadership has given no ground. Last month, Chinese president Hu Jintao declared: “Keeping the exchange rate of the renminbi stable serves China’s economic performance and conforms to the requirements of the economic development in the Asia Pacific region and the whole world.”

As a diplomatic sop to the imperialists, Hu promised to set up a group to “study” making China’s currency convertible in the future. How far in the future? The Far Eastern Economic Review (29 May), a well-informed journal based in Hong Kong, wrote in this regard: “The renminbi is not freely convertible on the capital account, and most analysts don’t expect this to change for some years. The fear is that opening the country’s capital account too soon will lead to huge outflows because of a lack of confidence in the banking system.”

But even if Beijing policymakers project maintaining the existing exchange rate and international monetary arrangements for some years, they may not be able to do so. The capitalist enclave of Hong Kong is an ever-widening breach through which illegal currency transactions flow in both directions. The expropriation of Hong Kong’s financiers and other sections of its bourgeoisie is vitally necessary to protect China’s economy from the destructive onslaught of the Wall Street, Frankfurt and Tokyo banks.

The Agrarian Question Comes to the Fore, Again

Discussions of China’s economy and its supposed “transition to capitalism” in the Western bourgeois media and academia usually focus on industry and finance. However, 700 million of China’s 1.3 billion people are still engaged in agriculture. The main social motor force for the 1949 Revolution was a massive peasant uprising against the landlord class, many of whose members received their just deserts at the hands of those whom they had brutally oppressed and exploited. All agricultural land was nationalized.

One of the first economic “reforms” of the Deng regime was the decollectivization of agriculture, with peasant families being given their own small plots on the basis of long-term leases. However, land was not reprivatized and restrictions were imposed on the transfer of leaseholds. Even so, competition among peasant smallholders necessarily resulted in ever-widening economic differentiation in the rural villages. A class of rich farmers emerged who, through semi-legal or illegal arrangements, have been able to exploit the labor of their poorer neighbors. Nonetheless, the basic structure of China’s agrarian economy is fundamentally and manifestly different from that of India, for example, where over a hundred million landless agricultural laborers toil on the large estates of wealthy landlords.

However, the current structure of China’s agrarian economy cannot long be maintained given its membership in the WTO. State-owned industrial enterprises can to a degree be buffered from increased import competition by additional government financing via the banks. But there is no way that China’s peasant smallholders can compete with the capital-intensive, scientifically managed agribusiness of the U.S. and other major food-exporting countries. While the Beijing regime has duly reduced tariffs and quotas on agricultural produce, it has also resorted to ad hoc protectionist devices. Last year, new “safety regulations” were applied to imports of genetically modified grain. This year, shipments of soybeans from the U.S., Brazil and Argentina were halted on the grounds that they were “contaminated” by a fungus (one which, however, is also common to soybeans grown in China).

Nonetheless, the basic line of the regime’s agrarian policy is not to protect the multitude of peasant smallholders. It is rather to move toward large-scale, de facto privately owned farms. Thus a CCP Central Committee plenum held in October adopted a resolution further easing restrictions on the transfer of agricultural land. An American journalist covering the meeting reported: “China is worried about competition in the World Trade Organization from foreign foodstuffs, and the emergence of big farms would increase agricultural efficiency, an agronomist said” (Washington Post, 15 October).

However, the resolutions and intentions of the CCP leadership in this regard, as in others, will not automatically and necessarily be translated into economic reality. The 1949 Revolution remains a living memory in the Chinese countryside. Poor peasants know that their grandparents meted out a rough plebeian justice to the brutal landlords and grasping village moneylenders. China’s would-be landlords of today could well suffer a similar fate. In fact, over the last decade China has seen many large-scale peasant protests and riots, especially against increased taxation and corruption.

Yet China does have to move from peasant smallholding to modern, large-scale mechanized farming. The question is how. A government based on workers and peasants councils would not only prohibit or restrict the hiring of labor and leasing of additional land by rich farmers but would also promote the recollectivization of agriculture. This does not mean reverting to the agricultural communes of the Mao era, which were basically an aggregate of backward peasant holdings. For the mass of Chinese peasants to give up their own holdings in favor of collective farms, they must be convinced that this will result in a higher standard of living for themselves and their families. Thus a government based on workers and peasants councils would offer reduced taxes and cheaper credits to peasants who joined collectives.

A rational collectivization and modernization of Chinese agriculture would signify a profound transformation of the society. The introduction of modern technology in the countryside—from combines to chemical fertilizers to the whole complex of scientific farming—would require a qualitatively higher industrial base than now exists. In turn, an increase in agricultural productivity would raise the need for a huge expansion of industrial jobs in urban areas to absorb the vast surplus of labor no longer needed in the countryside. Clearly, this would involve a lengthy process, particularly given the limited size and relatively low level of productivity of China’s industrial base. Both the tempo and, in the final analysis, the very realizability of this perspective hinge on the aid that China would receive from a socialist Japan or a socialist America, underlining again the need for international proletarian revolution.

The Spectre of a Workers Revolt

In early 2000, a large state-owned molybdenum mine in Yangjiazhangzi—a town in the depressed old industrial region of northeast China—was closed down. A few parts of the mine which were deemed profitable were privatized, mainly taken over by cronies of the incumbent managers. A protest at the enterprise headquarters by the laid-off miners over the paltry severance pay quickly escalated into a full-fledged workers revolt. Some 20,000 miners and their families took to the streets, setting up barricades, burning cars, smashing the windows of government offices and setting oil drums ablaze.

The authorities moved cautiously, for fear the workers might use the stock of dynamite in the mine to defend themselves. For two days, the workers battled the People’s Armed Police, a paramilitary force created in the mid 1980s specifically to put down growing social unrest. Finally, army units were brought in, firing live ammunition over the protesters’ heads, and quelled the rebellion. Two years later, workers also in northeast China unleashed the country’s largest revolt since the 1989 Tiananmen upheaval that marked an incipient political revolution.

In its own way, the Beijing Stalinist bureaucracy recognizes that it is sitting atop a volcano of social unrest. Last year, Jiang Zemin declared that “expanding employment and promoting re-employment isn’t only a major economic problem, it’s also a major political problem.” Yet Jiang and his cohorts have failed—and failed miserably—in achieving their own stated policy goal.

Labor minister Zhang Zuoji reported last year that of the 26 million workers laid off from state-owned enterprises since 1998, only 17 million have been re-employed. And the situation in this regard is rapidly deteriorating. According to government statistics, during the first half of 2002 only 9 percent of laid-off workers were re-employed compared to 50 percent in 1998. In many cities in China, workers line the roadsides seeking employment with signs around their necks indicating their job skills: electrician, carpenter, plumber.

The main means by which the Beijing regime has sought to slow the growth of unemployment has been a huge expansion of public works projects internally financed through an ever-higher level of government deficit spending. But in the not-so-distant future, the Beijing Stalinist regime is going to have to make some hard choices. To substantially increase the proportion of social product collected in taxes will entail cutting into the profits and incomes of the capitalist entrepreneurs and also those of the more affluent petty bourgeoisie. The Far Eastern Economic Review (10 October 2002), which is far from anti-capitalist in its outlook, observed: “The vibrant private sectors of the coastal economy are notoriously lax at paying taxes.” Alternatively, to substantially reduce government expenditure would entail throwing many more millions of workers into the street and cutting their meager social benefits (e.g., pensions). At that point policy differences within the CCP leadership, intersecting growing social tensions, could begin to fracture the bureaucracy.

During the past year, the Jiang regime has been succeeded by a so-called “fourth generation” of CCP leaders represented by Hu Jintao as president and Wen Jiabao as prime minister. Like Deng before him, Jiang has retained ultimate authority by remaining head of the CCP’s Central Military Commission, that is, de facto commander of China’s armed forces. The ideological stance of the “fourth generation” leaders indicates the conflicting social pressures upon them. On the one hand, they have been more openly pro-capitalist (legitimizing party membership for entrepreneurs, proposing to enshrine “property rights” in the constitution).

At the same time, the new CCP leadership has adopted a more “populist” political style than the gray, technocratic Jiang regime. Thus, shortly before becoming premier, Wen Jiabao went down a coal mine shaft in bitter cold to celebrate the Lunar New Year with the miners working there. More recently, China Daily (30 October) trumpeted Wen’s personal intervention to help a migrant construction worker collect unpaid back wages, commenting that this “attests to the fact that the new, in-touch-with-people leadership has taken hold when it comes to dealing with the underprivileged in the country.”

These “populist” gestures have been accompanied by promises to narrow the gap between rich and poor and between the relatively wealthy coastal provinces and the more impoverished regions of central and western China. If this is not just empty rhetoric but signals differences in the regime over economic policies and priorities, resulting factionalism could open up the political situation. In that event the decisive factors will be the political consciousness of the Chinese working class and other toilers and the ability of revolutionary Marxists (i.e., Leninist-Trotskyists) to intervene to change and elevate that consciousness.

For Workers Democracy!

In East Europe and the former Soviet Union in the 1980s and early ’90s, many workers as well as most of the intelligentsia succumbed to the illusion that the introduction of Western-style capitalism would rapidly produce Western-style living standards. But Chinese workers and the urban poor have already experienced a large dose of Western (and Japanese) capitalism in the form of hundreds of billions of dollars in foreign investment and joint ventures. They’ve also experienced the growing presence of Chinese capitalist exploiters, both mainland-derived and offshore. And what those experiences amount to is a massive increase in unemployment, economic insecurity, social inequality and income differentials.

All evidence indicates there is deep and widespread popular hostility to those capitalist elements that currently exist in China. A public opinion survey conducted early this year by People’s University found that only 5 percent of respondents thought that the newly rich had acquired their wealth by legitimate means. The proposal floated at the CCP’s 16th Congress last year to incorporate “property rights” in the constitution has provoked something of a popular backlash. In the past few years, there has been a rash of murders of wealthy tycoons.

If Chinese workers are unlikely to have illusions in Western-style capitalism, the question of Western-style “democracy” is another matter. When the political situation in China opens up, anti-Communist counterrevolutionary groups and parties will doubtless hide their advocacy of “free market” economics while pushing for “democracy,” i.e., a parliamentary government elected on the basis of one man, one vote. Typical of such types is Han Dongfang, a pro-imperialist “dissident” who publishes the journal China Labour Bulletin in Hong Kong and is a darling of right-wing Congressmen and the anti-Communist AFL-CIO bureaucracy in the U.S.

Parliamentary government is in fact a political form of the dictatorship of the bourgeoisie. In such a system the working class is politically reduced to atomized individuals. The bourgeoisie can effectively manipulate the electorate—in which the vote of a factory worker counts the same as that of a factory manager or technocrat—through its control of the media, the education system and the other institutions shaping public opinion. In all capitalist “democracies,” government officials, elected and unelected, are bought and paid for by the banks and large corporations.

As Lenin explained in his classic polemic against social democracy, The Proletarian Revolution and the Renegade Kautsky (November 1918):

“Even in the most democratic bourgeois state the oppressed people at every step encounter the crying contradiction between the formal equality proclaimed by the ‘democracy’ of the capitalists and the thousands of real limitations and subterfuges which turn the proletarians into wage-slaves....

“Under bourgeois democracy the capitalists, by thousands of tricks—which are the more artful and effective the more ‘pure’ democracy is developed—drive the people away from administrative work, from freedom of the press, freedom of assembly, etc.... The working people are barred from participation in bourgeois parliaments (they never decide important questions under bourgeois democracy, which are decided by the stock exchange and the banks) by thousands of obstacles, and the workers know and feel, see and realise perfectly well that the bourgeois parliaments are institutions alien to them.” [emphasis in original]

Under bourgeois democracy, workers merely have the illusion of some control or power over the government. But under a workers state, the question of workers democracy is not one of abstraction or illusion, but at bottom a question of power. In a workers state like China, the dictatorship of the proletariat is deformed by Stalinist misrule—the proletariat as a class is deprived of political power, which is instead monopolized by an anti-working-class bureaucratic caste whose policies ultimately threaten the very existence of the workers state. The working class and rural toilers can exercise real political power only through a dictatorship of the proletariat ruled by their own class-based governing institutions, the soviets (the Russian term for councils), which would be open to all parties defending the collectivized foundations of the workers state. In the same work quoted above, Lenin explained:

“The Soviets are the direct organisation of the working and exploited people themselves, which helps them to organise and administer their own state in every possible way. And in this it is the vanguard of the working and exploited people, the urban proletariat, that enjoys the advantage of being best united by the large enterprises; it is easier for it than for all others to elect and exercise control over those elected. The Soviet form of organisation automatically helps to unite all the working and exploited people around their vanguard, the proletariat. The old bourgeois apparatus—the bureaucracy, the privileges of wealth, of bourgeois education, of social connections, etc. (these real privileges are the more varied the more highly bourgeois democracy is developed)—all this disappears under the Soviet form of organisation....

“Proletarian democracy is a million times more democratic than any bourgeois democracy; Soviet power is a million times more democratic than the most democratic bourgeois republic.” [emphasis in original]

The alternatives facing China are proletarian political revolution or bloody capitalist counterrevolution. It must be noted that under no circumstance will capitalist restoration produce any form of bourgeois democracy. The counterrevolutionary destruction of the Soviet degenerated workers state and the deformed workers states of East Europe offer a glimpse of what capitalism has in store for China’s workers—fratricidal warfare, poverty and unemployment, all-around social devastation (see “Why We Fought to Defend the Soviet Union,” WV Nos. 809 and 810, 12 and 26 September).

It is no accident that, around the time of Yeltsin’s counterrevolutionary coup in 1991, many Yeltsinite “democrats” argued that a “Russian Pinochet” would be needed to administer nascent capitalist rule in the former Soviet Union. Economist Gavriil Popov, a key Yeltsin ally and chief ideologue of the “Democratic Platform” of the Soviet CP, who was elected mayor of Moscow in 1991, frankly acknowledged that the introduction of capitalism would not be compatible with bourgeois democracy:

“Now we must create a society with a variety of different forms of ownership, including private property; and this will be a society of economic inequality. There will be contradictions between the policies leading to denationalization, privatization, and inequality on the one hand and, on the other, the populist character of the forces that were set in motion in order to achieve those aims. The masses long for fairness and economic equality. And the further the process of transformation goes, the more acute and more glaring will be the gap between those aspirations and economic realities.”

— “Dangers for Democracy,” New York Review of Books, 16 August 1990

Even in the former USSR, which was a global industrial and military power, the capitalist political regimes in the various constituent republics range from semi-bonapartist “parliamentary” rule to outright dictatorship. A capitalist China would subject its masses to even more immense social dislocation and far greater poverty.

Moreover, where the old Russian bourgeoisie was destroyed as a class, the Chinese bourgeoisie was simply driven offshore by the revolution and today remains ready to reclaim its lost holdings and wreak revenge, above all against the combative proletariat. Capitalist restoration could bring with it a revival of the imperialist-sponsored warlordism that marked pre-revolutionary China, leading to the subjugation and dismemberment of the country at the hands of Western and Japanese imperialism while inflicting massive destruction on North Korea and Vietnam.

To achieve soviet democracy in capitalist countries requires a proletarian social revolution that expropriates the bourgeoisie and overturns the capitalist profit system. In contrast, in China it requires a proletarian political revolution to oust the ruling bureaucracy and to place political power in the hands of workers, soldiers and peasants councils. Such a political revolution is premised on the unconditional defense of the collectivized economy which is the social foundation of the workers state. Its program was encapsulated by Trotsky in his classic analysis of Stalin’s Russia, The Revolution Betrayed (1936):

“It is not a question of substituting one ruling clique for another, but of changing the very methods of administering the economy and guiding the culture of the country. Bureaucratic autocracy must give place to Soviet democracy. A restoration of the right of criticism, and a genuine freedom of elections, are necessary conditions for the further development of the country. This assumes a revival of freedom of Soviet parties, beginning with the party of Bolsheviks, and a resurrection of the trade unions. The bringing of democracy into industry means a radical revision of plans in the interests of the toilers.... ‘Bourgeois norms of distribution’ will be confined within the limits of strict necessity, and, in step with the growth of social wealth, will give way to socialist equality.... The youth will receive the opportunity to breathe freely, criticize, make mistakes, and grow up. Science and art will be freed of their chains. And, finally, foreign policy will return to the traditions of revolutionary internationalism.”

The fight for workers democracy is intimately linked to the struggle for the extension of revolution. Karl Marx once wrote that with scarcity, want is generalized, “and with want the struggle for necessities begins again, and that means that all the old crap must revive.” The material basis for bureaucratism lies with scarcity—the bureaucracy deems itself the arbiter of how scarce resources are used and distributed. Historical necessity once again forces the question of revolutionary internationalism. Without a socialist America, a socialist Europe, a socialist Japan, the working people of China will not be able to eliminate scarcity and want. Indeed, the fate of the Chinese proletariat—the fate of working people and the oppressed throughout the world—will be decided in the struggle for international socialist revolution.

The International Communist League is committed to bringing this revolutionary Marxist program—the only program which can defend China against the powerful forces of imperialist-backed counterrevolution—to the workers and rural toilers of China today.

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