How a decayed workers state transformed into monopoly capitalism in China

Capitalist economic and social relations had been slowly developing and strengthening within the Chinese workers’ state as far back as the aftermath of the Great Leap Forward fiasco, when the Maoist rulers began leaning increasingly on market forces to regulate economic life. This tendency accelerated sharply with Deng’s reforms in the wake of the “Cultural Revolution” disaster. But they remained constrained by the economic and political forms of the workers’ state, horribly decayed as these were. For the emerging capitalist class to spread its wings and unleash the free movement of capital, they had to seize political power (just as this same class had eventually had to in centuries past, when it emerged and built its economic power within feudal Europe.) That was the essence of the political crisis at Tiananmen in 1989; the seizure of power is how that crisis was resolved.

Tiananmen Square 30 years on: 30 essential stories about June 4, 1989 –  SupChina
Tiananmen Square 1989: the violent seizure of political power by a newly emerging capitalist class

The capitalist class which came to power in China in 1989 had little connection with the capitalists overthrown in the 1950s (whose descendants still ruled in Taiwan.) The new bourgeoisie in China emerged from within the state and Party bureaucracy, having used their position in the state to enrich themselves. By means of the counter-revolutionary violence of 1966-76, the administrators of the economic apparatus became, in 1989, its owners. 1

This circumstance meant that on its return to power in 1989 the Chinese bourgeoisie inherited some uniquely favourable conditions, not just in comparison with the semicolonial countries, but even, in some respects, in comparison with the old imperialist powers.

From the Third Chinese Revolution the new bourgeoisie inherited a unified, sovereign Chinese nation politically freed from foreign domination, with landlordism vanquished and the vestiges of feudal social institutions largely wiped out (with one important exception – the hukou). In this respect China was unlike Brazil, where 1% of the population owns 45% of arable land, while the poorest 40% owns 1%, and unlike India, where landlordism still acts as a mighty brake on development.

It was also unlike all of Latin America under the domination of the big US, British and other imperialist banks and corporations, where the price of sovereignty is crushing economic retaliation, diplomatic isolation, and the constant threat of military intervention from the colossus to the north. Only Cuba has been able to resist these pressures successfully, and Cuba has paid a huge price for its sovereignty: the US economic embargo remains a noose around its neck.

Port of Shanghai, 1950. In that year the US launched a trade embargo against China, which only relaxed as China turned towards the restoration of capitalism.

China had to endure a similar US economic embargo, military threats and diplomatic isolation in its fight for sovereignty in the 1950s: as late as 1971 the United States, and consequently also the United Nations, recognised the rump Guomindang regime in Taiwan as the legitimate government of all of China. The US only fully recognised the People’s Republic of China in 1979. The last elements of this campaign were dismantled with China’s political turn towards the restoration of capitalism; China was admitted to the World Trade Organisation in 2001.

The Chinese bourgeoisie therefore also inherited the vast domestic market created by that national unity, constantly expanding as peasants migrated to the cities. Together with its reserves of coal, ores, and other natural resources, this huge domestic market provided the Chinese capitalists with a counterweight to the pressures of the imperialist monopolies enjoyed by no other country outside of the US. What other country in the world could even contemplate barring Google, as China did?

google china news
When Google refused to accept censorship and other conditions imposed by the Chinese government, it was effectively barred from China in 2010. Only China has a domestic market sufficiently large that it could dictate terms to Google.

The urban migration, already under way at the time of the restoration of capitalist rule and now nearly completed, was an inheritance from history: a condition enjoyed only once in the history of a nation, and never repeated. A similar urban migration fuelled the expansion of industry in the Soviet Union in the 1930s to the 1960s, the US and Japan in the late nineteenth and early twentieth centuries, Britain and most of western Europe earlier still. With this vast reserve army of labour in the countryside available to it, with the peasants’ connection to the land largely uprooted by the People’s Communes, and aided by the hukou, a surviving feudal institution, for regulating its movements, China in the 1990s had an engine of development long spent in the old imperialist countries, and still under chains in most of the semicolonial world. This was the key reason why the restoration of capitalism in Russia and eastern Europe produced such different outcomes from China.

Protest in 2014 by migrant construction workers demanding unpaid wages. Photo: PIME Asia News

From the 1966-76 counter-revolution the new ruling class inherited an atomised, unorganised, leaderless working class, cut off from the world for decades, lacking its own organisations, lacking even the most basic rights of freedom of speech and assembly. The ruling class enjoyed this advantage in contrast with, for example, their counterparts in South Korea, where a powerful union movement places limits on capitalist profit-making, or Brazil, where the workers make use of their rights to organise politically to defend their class interests.

Also from the counter-revolution it inherited a colossal repressive police-state apparatus, carried over intact from the Maoist regime, with huge (if at first poorly-equipped) armed forces, and an established network of police, prisons, and snitches in every city, town, and village, whose switch to serving the new class masters was effortless, even instinctive. The tools at the disposal of the police included the draconian identity-card and internal passport system (the hukou) and a network of ‘black prisons’ where people could be interned without recourse to the courts. (The black prisons were frequently used to persecute people who had travelled to Beijing to petition the authorities). It was not long before it was equipped with means of electronic surveillance that are the envy of police departments the world over. In its machinery for policing the working class, China exceeded not just the imperialist democracies, but even semicolonial countries like India and Iran, where workers can make use of voting, travel, and other rights with far less interference from police.

China's People's Armed Police strike fear in Xinjiang. (Photo : Xinhua)
In 2013 the Chinese government spent more on internal security, including the People’s Armed Police pictured here, than on the People’s Liberation Army

The counter-revolution also bequeathed an even more important tool for keeping the working class in subjection: a highly efficient organisation for distributing a share of monopoly super-profits among the professional middle class and the upper layer of the working class, and thereby mobilising political support to the capitalist state and assuring a large measure of political stability. The 95-million-member Communist Party of China, built during the reign of, and in the image of, the Stalinist bureaucracy, and intimately integrated with the state and economic apparatus, is the largest class-collaborationist political machine in human history, far surpassing the mass social-democratic and Stalinist parties of Europe in their heyday, and even the mass fascist political machinery of Nazi Germany.  This was perhaps the greatest gift bestowed on the new bourgeoisie by its own former incarnation.

Image of party leader Xi Jinping projected onto a giant screen at a celebration of the Chinese Communist Party’s hundredth anniversary. The CPC is the largest class-collaborationist political machine in history Photo: Lintao Zhang, Getty

All of these advantages fell into the lap of the new Chinese bourgeoisie at the very time when United States capital, suffocating under the falling rate of profit in own market, was desperately seeking sources of cheaper labour around the world. The dismantling of industry in the US, Japan, and Europe, and the export of capital to countries with cheaper labour costs brought a flood of foreign investment to China in the 1990s and beyond.

Not even Japan or the US, at the time of their rise to become imperialist powers a century ago, enjoyed such a boon – the world was awash with a surfeit of capital seeking profitable investment. And for all the reasons listed above – except the first! – China offered some of the most attractive opportunities in the world for foreign investors: historically low wages, a massive reserve army of labour to keep wages down long-term, the vast and growing Chinese market, the means to police the labour movement, political stability. This historic shift of world manufacturing was already under way; it took place at a particularly opportune moment for re-born Chinese capitalism.

For its part, the new ruling class in China welcomed this investment, despite the fact that it meant that a large portion of the surplus value created in the Chinese factories would flow offshore. For this investment was their means of acquiring the necessary technology and skills, without which an indigenous Chinese capitalist industry could not be built. A requirement to share the technology was therefore the main condition the Chinese government imposed on this foreign investment.

China’s role in world trade has been so weighty, most attention has naturally been given to the growth of those industries geared to the world market, such as the electronics industry. However, the transformation is perhaps easiest to see in the industries that were primarily engaged with the domestic market at first, such as the automotive industry.

Left: the very first VW Santana produced in China in 1985. This model remained in production until 2012

In the early 1980s Jeep, Volkswagen and Peugeot established joint ventures with state-owned manufacturers which had been producing mainly agricultural, industrial or military vehicles. These joint ventures began assembling cars in Beijing, Shanghai, and Guangzhou respectively. The Shanghai Automotive Industry Corporation (SAIC), a state-owned corporation previously making mainly tractors, was one of these. It began assembling cars from knocked-down kits supplied by Volkswagen (VW), with little more than the tyres produced locally. VW supplied the capital, technology, materials and the all-important brand-name. China supplied the cheap labour and access for VW to the market of 1.3 billion.

Through the 1990s SAIC began producing an increasing proportion of the components locally; by 1998 90% of the parts for its VW Santana were produced in Shanghai itself. Its connection with the state proved very advantageous: Shanghai taxi companies were permitted to buy these cars only, and a substantial localisation tax was levied and used to subsidise local parts production. In 1997 SAIC formed another joint venture with General Motors to produce Buicks, and with the Ford-spinoff auto-electronics manufacturer Visteon. Together with GM, SAIC then acquired interests in the Korean carmakers Daewoo and SsangYong, which likely gave it access to technology from Mercedes.

It also bought up technology from the defunct British carmaker Rover-MG, but was unable to acquire the brand-name, so in 2006 SAIC launched its first ‘own’ car under a new marque, Roewe (near enough!), followed by a line of light commercial vehicles under the Maxus marque. (These same vans are sold in Australia and New Zealand under the old Rover marque LDV, the initials of Leyland DAF Vans). Eventually SAIC acquired the disembodied brand name of Rover-MG through a merger, and in 2010 began manufacture of the Rover M6 from Chinese-made knocked-down kits at its plant in the UK, in order to penetrate the European market. This ghostly resurrection of the UK car industry was a lesson in the strange persistence of brand names and country-of-origin designations long after they have lost all meaning.

By this time, both production and sales of cars in China were surging: in 2009 production increased 54% on the previous year to more than 10 million units while, due to the Global Financial Crisis, US production dropped in the same year by 2.8 million units. China had become both the world’s largest producer and largest market for cars. Increasingly, patriotic-minded Chinese buyers were turning to local Chinese brands in preference to the international brands offered by the joint ventures. Both new private firms and the existing state-owned ones launched their own brands to fill this need.

China also began exporting cars, selling in markets like Turkey and the Middle East, North Africa, Latin America and Russia at half the price of comparable models from the big-name brands. In 2011, exports increased 50% on the previous year. At about this time, there was a slew of allegations of theft of “intellectual property” by Chinese car manufacturers, of both technology and designs. BMW, Renault, Honda, Toyota, Daimler-Chrysler, GM and others voiced angry complaints – but there was little legal action, so fearful were they of finding themselves excluded from the Chinese market.

With the advent of electric cars, China’s demands for technology-sharing from its joint-venture partners were even stricter. China today has nearly 5 million electric vehicles – about half of all EVs in the world – and annual sales of over a million units. More importantly, it dominates the production of the lithium car batteries. CATL, a private Chinese company with market capitalisation of US$240 billion, supplies batteries to all the world’s big electric carmakers, including Tesla. China has the world’s fourth-largest known reserves of lithium (after Chile, Australia and Argentina), and is actively acquiring reserves in Argentina and elsewhere. “Grab the scale, grab [market] share, profit is not a matter of consideration at this stage” is how one industry executive puts it. Meanwhile, China is rapidly displacing the US in the race to dominate supplies of cobalt, another key raw material for the batteries, in the Congo, which has two-thirds of the world’s reserves. Seizure of the most important sources of raw materials is one of the forms of monopoly Lenin draws attention to.

Left: EVs being assembled in Jiangxi province. Photo: Duan Changzheng, China Daily
Right: giant Tesla factory in Shanghai. Photo: VCG, Caixin

Today, then, the Chinese automotive industry, which began from joint ventures between small, mostly industrial-vehicle production units of the Chinese state, entirely dependent on the old car makers trying to crack open the China market, has become the world’s giant. It is dominated by the ‘big four’ state-owned corporations, (SAIC, Chang’an Group, Dongfeng Motor Corporation, and FAW Group) which in practice behave like any private monopoly, including by benefiting from tariffs and state subsidies in various forms to enable them to compete in the world market. SAIC is ranked 60th on the Fortune 500 Global list, below BMW (54th) but higher than Hyundai (83rd).  The industry still lags technically: for example, while the spot-welding used to assemble the car bodies is highly robotised and automated in factories in Germany, Japan or the US, in some factories in China this is still done by workers operating the spotwelding guns. This is simply a consequence of the plentiful supply of cheap labour in China, and as the industry grows, it is catching up technically at the same time.

The domestic market has been the main field of the automotive industry to date, but as it reaches the limits of that market, the industry is increasingly forced to expand into the world market, acquiring factories and stakes in capitalist corporations in other countries, undercutting the established brands in price, and securing access to raw materials like any capitalist multinational corporation, and taking the lead in the new field of electric cars. The transformation into monopoly capitalism is complete.  


Chinese industrial capitalism was born in the age of imperialism. The essence of imperialism, Lenin reminds us, is monopoly capitalism, under the domination of the banks, and with the merging of banking and industrial capital. Lenin also notes that imperialist monopoly anticipates the transition to the higher socio-economic order of socialism.2 The story of China’s 30 years of rapid industrial development has from the start been the story of monopolies. These monopolies, with a few exceptions, did not and could not have developed through the same process of concentration of capital as they did in Europe and North America, where monopoly displaced free competition, but only ‘from above’ and ‘in reverse’ as it were, through the partial privatisation of the planned economy and its state monopoly. Chinese capitalism has taken one of the features of socialism (the nationalised, centrally-planned economy) directly from the tomb of the revolution, and handed it over to the ‘glorious rich.’

(For a more detailed discussion of the transformation of the Chinese State Owned Enterprises into profit-making mixed-ownership competitive corporations, with a high degree of autonomy from the state, I know of no better account than this blog post by Brian Lyons.)  

Some of the Chinese monopolies are household names the world over, on account of their size and global reach, like Alibaba, the e-commerce, cloud computing and technology corporation founded by billionaire Jack Ma, and Tencent, the technology and gaming conglomerate best known for its multi-function ‘super-app’ WeChat.

But the biggest monopolies in China are the world’s largest industrial giants and banks, many of which are wholly or partly state-owned. State Grid is the world’s largest electricity utility, and second-largest corporation in world on the Fortune 500 global list, behind only Walmart. China National Petroleum Corporation and Sinopec, both oil and gas corporations, are 4th and 5th on the Fortune list. China State Construction Engineering, the largest construction company in the world and 13th on the Fortune list, was the company commissioned by Beijing to build a two-floor hospital in Wuhan with 1,000 beds and 30 intensive care units in under ten days, as the Covid pandemic spread in early 2020; it has built another 118 hospitals since then. Ping An Insurance, a private company 16th on the Fortune list, has grown rapidly to become one of Asia’s largest insurers by means of a super-app with 600 million users, providing financial, health care, auto, and real estate services. Like WeChat and the big data-gatherers in the US, it targets this huge pool of users with advertising based on sophisticated Artificial Intelligence algorithms. Recently its stock price was hit by the government’s push to rein in some of the big private companies.

Left: CCTV headquarters in Beijing, a China State Construction Engineering project completed in 2012. Right: Emergency Covid hospital nears completion after only ten days, Wuhan, 2020.

The four largest banks in the world are in China: the Industrial and Commercial Bank of China with assets of over $5 trillion, China Construction Bank, Agricultural Bank of China, and Bank of China. By comparison, next biggest bank is JP Morgan Chase, with assets of $3.4 trillion.

Thus, the final gift the new bourgeoisie inherited from the decayed revolution was the large ‘state sector,’ above all the four giant banks, which manage the economic life of the Chinese nation under the direction of the state. The structure of the Chinese economy and state, with heavy government intervention in all aspects of economic life, on the basis of commodity production and private profit-making, has proved uniquely well-suited to China’s emergence in the late imperialist age. It could be considered the most successful and even the quintessential form of the imperialist state, and we should expect that this type of ‘command capitalism’ or ‘state capitalism’ will have its imitators in future.

The weight of the ‘state sector’ in China causes much confusion, however. The next post on China’s economic transformation will look at state property, the hukou, and the roots of the property-development and banking crisis in China today.

Footnotes

  1. Such an origin for a bourgeois class was not entirely without precedent. In Egypt, for example, colonial rule had stunted the growth of an indigenous bourgeoisie, except for a small comprador capitalist class acting as imperialism’s agents. The anti-colonial revolt of 1952, in which the monarchy was brought down by massive strikes, peasant uprisings, and guerrilla warfare against the occupying British army, culminated in a coup d’etat by army officers led by Gamal Abdel Nasser, who talked the language of “Arab socialism.” Most of the comprador bourgeoisie and landlords opposed the Nasser government, which carried out a land reform and extensive nationalisations of banks, insurance companies and industrial enterprises. Through mobilising state funds to build new state-owned industries, and by using their positions in the state machinery to enrich themselves along the way, a new bourgeois class was created out of the state bureaucracy itself.

  2. “We have seen that in its economic essence imperialism is monopoly capitalism. This in itself determines its place in history, for monopoly that grows out of the soil of free competition, and precisely out of free competition, is the transition from the capitalist system to a higher socio-economic order.” Lenin, Imperialism, opening of Chapter X, The Place of Imperialism in History.

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