Lessons of the Chinese economic reform, part 2

[Continued from Part 1]

The virtuous circle of the Chinese economic reform

As the consumer boom took off however, it had an increasing knock-on effect upon the state-owned industrial sectors of the Chinese economy. The increased income of farmers and small businesses created a demand for rapid expansion of production of materials for construction, farm equipment, fertilisers and all kinds of machinery necessary for the further expansion of consumer production.

‘The pace of growth of light industry accelerated sharply in the reform period. From 1978 to 1992, light industry (real gross value of output) grew at a reported rate of almost 15 percent per annum. However, in a relatively closed economy such as China’s, such growth can only be sustained through simultaneous rapid growth of output from heavy industry to provide the inputs for light industrial products.

‘Consequently alongside a boom in output of light industrial products often from the small-scale sector, went a simultaneous rapid growth of output from the heavy industrial sector… The real growth rate of heavy industrial output was reported to be almost 11 per cent per annum in the period 1978 to 1992… Paradoxically, an economy which had shown large heavy industry bias under the communist command system continued to require rapid growth of output from the heavy industrial sector during the reform period. The inter-sectoral relationship under reform had shifted from unbalanced heavy industry growth to balanced growth path, rather than to the emphasis of light industry to the neglect of heavy industry. Indeed, between 1978 and 1992, China’s ranking in total world output shifted from fifth to fourth largest in steel, from third to first place in coal, from eighth to fifth in crude oil, from seventh to fourth in electricity, and from fourth to first in cement.’ [26]

As a result of the growth of first agriculture and then the mainly collectively owned new consumer industries, the expansion of heavy industry was also driven forward. In this sense, the Chinese experience since 1978, is superior not only to the IMF-inspired disasters in Eastern Europe and the former Soviet Union since 1989 and 1991, but also shows the ultimate dead-end of the Stalinist strategy of developing heavy industry at the expense of consumer goods and services (outside of such emergencies as war). Both are based on reducing the living standards of the working class and peasantry. The working classes of Eastern Europe and the Soviet Union finally rejected the Stalinist regimes because their living standards were subordinated to a utopian project, socialism in one country, which ultimately undermined the entire functioning of the economy. Recent elections demonstrate that they are now grasping that capitalism is worse. China’s experience is a practical alternative to both.

The ownership structure of the Chinese economy

The Chinese economic reform created the most rapid growth of small businesses and farms anywhere in the world, possibly ever in history. Yet there was virtually no privatisation of large scale industry: ‘Unlike Eastern Europe, China has made no efforts to privatise its large state-owned sector but has relied instead on collective enterprises and joint ventures (with foreign partners), and private business, though the latter only accounts for a small part of the economy.’ [27]

Public ownership remained predominant even in the rural areas. For example, in 1990 village collective organisations were responsible for ploughing more than 35 per cent of farmland, irrigated 70 per cent of the irrigated area, providing crop protection for 62 per cent of protected crops, supplying more than one third of seeds, fertiliser, insecticide and diesel-oil inputs. It is estimated that in 1992, the income generated by rural collective and cooperative organisations accounted for 45 per cent of the total income of China’s rural economy. [28]

Public ownership of land was a powerful countervailing force to the social inequality which inevitably accompanied elements of the market reform: ‘Farmland was “de-collectivised” in the early 1980s. This was not followed by the establishment of private property rights. Because the Chinese Communist Party wished to prevent the emergence of a landlord class, it did not permit the purchase and sale of farmland. Still in 1994, the Party “adhered to the collective ownership of farmland”. The village community remained the owner, controlling the terms on which land was contracted out and operated by peasant households. It endeavoured to ensure that farm households had equal access to farmland… Farmland was not distributed via a free market auction, which would have helped to produce a locally unequal outcome. Rather the massively dominant form was distribution of land contracts on a locally equal per capita basis. This huge “land reform”, affecting over 800 million people, was a remarkably orderly process. It was not a disorganised land grab in which the strong members of the village squeezed out the weak… The egalitarian land reform in the 1980s tended greatly to increase socio-economic stability. It provided equality of access to the use rights of the most important asset in China’s villages… It made public action easier to implement since villagers shared a common position in respect to the principal means of production. It provided a hugely egalitarian underpinning to rural, and indeed national, income distribution.’ [29]

The system of farming and land ownership which has developed in China has made rational use of markets without creating the structure of land ownership characteristic of capitalism in either the advanced industrial countries or the countries which remain dominated by imperialism. ‘The distinguishing feature of China’s land tenure system in the post-reform period is separation of individual user rights from other ownership rights which remain “collective”. The right to use village land is granted to individual households. However, the village retains other rights associated with ownership. Specifically the village collective, as the delegated owner, has the right to allocate land among its members, the right to lease land to outsiders or sell land to the state, and the right to claim rent income from the land… Under the household responsibility system, peasant households are the basic units of farm production, while the village collective takes charge of managing land contracts, maintaining irrigation systems, and providing peasants with equitable access to farm inputs, technologies, information, credit, and the services of farm machinery, product processing, marketing, primary education and health care.’ [30]

In the industrial sphere, the largest-scale change was not from public to private ownership, but a change in the weight of different types of publicly owned enterprises – a vast increase in the collective sector controlled by local government at village, town and city level: ‘The most significant change has been the rise in the industrial output produced by the collective sector. This sector consists largely of enterprises under the administrative control or ownership of local-level government at the provincial, city, township and village levels… This sector represents … a form of social ownership (as opposed to state ownership which is but one form of social ownership)… socially owned enterprises (i.e. state and collectively owned enterprises) still produce over 85 per cent of China’s industrial output. Whilst growth rates may be highest in the private sector, the percentage of output this produces is still very small and the most significant quantitative change in the composition of industrial output during the reform period has been the change within the socially owned sector from the state-owned to the collective sector.’ [31]

Furthermore, this change occurred on the basis, not of a collapse of state-owned industry, but because the collectively owned sector in light industry grew even faster: ‘The state’s share of total industrial output (gross value) fell sharply during the reform, from 78 per cent in 1978 to 48 per cent in 1992. However, the share of the collectively owned sector (i.e. the locally publicly owned sector) rose rapidly, from 22 per cent in 1978 to 32 per cent in 1992. Thus in 1992, fourteen years after the reforms began, the publicly owned sector still produced over 80 per cent of industrial output. Even in Guangdong province, much the most market oriented province in China, the publicly owned sector still in 1992 produced 68 per cent of gross industrial value. The pure private sector produced just over 5 per cent and ‘other’ sectors, which were mainly joint ventures, usually with public sector firms, produced just over 26 per cent of industrial output (gross value) in Guangdong. Thus, during at least the first decade of China’s reforms, entrepreneurship was mainly employed in the service of some form of public enterprise.’ [32]

The part of the state sector which was displaced by collective and private industry was precisely that producing on the smallest scale: ‘the share of the non-state sector, including both the collective and latterly the individual and foreign investment sector, rose dramatically from 22 per cent in 1978 to 52 per cent in 1992. However this was almost entirely achieved at the expense of the small scale state sector. The share of the large-scale and medium scale industrial sector, which was almost wholly state-owned, remained remarkably constant, at around 43 per cent of output throughout the reform period.’ [33]

This was theorised on the basis that state ownership was less efficient than a market mechanism in relation to the smaller units of production. The attempt to operate the whole of industry in the state sector prior to 1978 had simply meant that the millions of smaller scale enterprises necessary to produce consumer goods failed to develop. As a result of the economic reform: ‘The rapid growth in the non-state sector’s share of industrial output was largely at the expense of the small-scale state sector. The large-scale state-owned sector grew at roughly the same (i.e. very rapid) rate as the whole industrial sector. Indeed, the share of large scale industrial plants in total gross industrial output remained constant at around 25–26 per cent throughout the 1980s.’ [34]

The basic industrial structure which emerged was one in which the state sector remained dominant in large-scale heavy industry, rural areas experienced rapid industrialisation driven by the development of collectively owned enterprises and the private sector grew rapidly in the smallest units of production of all.

As regards the relative weights of the collective and private sectors: ‘In the 1980s it once again became legal to set up and run small businesses, and the pure private sector grew rapidly. By the early 1990s, the total number of people working in individual rural non-farm businesses had risen from negligible levels to around 47 million. However, the rural collectively-owned sector still employed a much large number of people, around 59 million in 1992.’ [35]

By 1994 the collective sector of town and village enterprises employed 112 million people and since 1990 had created 6.5 million jobs a year, absorbing 70 per cent of the annual net addition to the rural labour force.

The ‘pure private business sector was mainly small-scale “petty commodity production”. located predominantly in non–industrial activities with small amounts of fixed assets per business. The collective sector occupied the “commanding heights” of rural industry accounting for 63 per cent of employees in rural industry in 1992… The rural collectively owned sector was much larger than the urban one. ILS output value in 4992 was 2.2 times larger than that of the urban collective sector.’ [36]

Although the collective enterprises operate in a market, they do not have the characteristics of co-operatives in a capitalist economy: ‘China’s “collectively” owned enterprises were not cooperatives in the normal sense of the word, namely each enterprise run by its owners. Rather, they resembled national state-owned, with the “state” being the local community, each of which typically owned multiple enterprises.’ [37]

The relevance of such structures to the former Soviet Union is obvious: ‘If the transition orthodoxy’s view of the relationship between property rights and economic incentives were correct, one would have expected that, whatever changes had taken place in the setting within which China’s rural non-farm collectively-owned enterprises operated, they would still have been unable to operate successfully. Instead of stagnation, the 1980s witnessed phenomenal growth in rural non-farm industry in which the public sector was dominant. Between 1978 and 1992 total employment in the sector increased from 17 million to 63 million and the gross value of output rose by around 22 per cent per annum. The share of the township enterprise sector in China’s gross material product rose from 17 per cent in 1985 to 25 per cent in 1990; exports from China’s rural township enterprises rose from $1.7bn to S9.6bn; and their share of China’s rapidly growing exports increased from 4.8 per cent to 15.2 per cent… had the export performance of a single developing country improved in such a dramatic way, teams of Western experts would have been despatched to understand the cause of the phenomenon. Yet there was little serious outside investigation of the reasons for the explosive export growth of this predominantly publicly owned sector.’ [38]

Furthermore, the fact that these enterprises were owned by the local village and town communities meant that their surpluses could be made available for the development of welfare services locally: ‘China’s local authorities were able in most areas to generate revenue from the rural non-farm sector, so that they were in a better position than might have been the case with privatised small businesses to undertake community welfare expenditures of benefit to the standard of living of the whole local community.’ [39]

The overall structure of China’s industrial output by forms of ownership is shown in Table 2.

Table 2
Shares in gross industrial output value by form of ownership
Year Total (billion yuan) State % Collective % (total) Collective % (urban) Collective % (rural) Private % Other %
1980 515.43 76.0 23.5 13.7 9.9 0.02 0.48
1985 971.65 64.9 32.1 13.3 18.8 1.85 1.20
1990 2392.44 54.6 35.6 15.0 20.6 5.39 4.38
1992 3706.6 48.1 38.0 13.2 24.8 6.76 7.11

Source: calculated from Statistical Yearbook of China, 1993, p414
Collective total=collective urban+collective rural. Private refers to private firms employing less than eight people. Other refers to private firms employing more than eight people, joint ventures and wholly foreign-owned firms. From Bowles and Dong, 1994

The international success of the Chinese economy

The driving force of China’s phenomenal economic growth has been its domestic economy. It was the success of China’s domestic economy which attracted foreign investment, not vice versa. As late as 1983, by which time the Chinese economy was growing at 9 per cent a year, annual foreign investment was less than $2bn. It was the priorities established in China’s domestic economy which made possible the extraordinary expansion of its foreign trade and foreign investment into China.

That is the only way in which economic policy could proceed. It is not possible to apply fundametally un-integrated domestic and international economic policies. The priorities established in the domestic economy determine the resources available for international trade. The priorities established in international trade will require the corresponding allocation of resources in the domestic economy.

In this sphere too, neither the theory of socialism in one country, nor opening the economy up to the international market, could achieve the desired result – to take advantage of the international division of labour to progressively upgrade the performance of the economy.

Socialism in one country was a dead-end quite simply because it is not possible, on the basis of one country, to create a development of the productive forces superior to capitalism, which is based upon an international economy. The overturn of capitalism is both possible and necessary in individual countries. However, to date capitalism has been overturned, not in the most advanced capitalist countries, but in those countries whose further development was blocked by capitalism. Without the socialist revolutions of 1917 and 1949, Russia and China would have been prey to more powerful imperialist states which would have broken them up and colonised them – just as the Ottoman empire was parcelled up between the Western imperialist powers. Lenin summarised the problem: ‘a backward country can easily begin because its adversary has become rotten, because its bourgeoisie is not organised, but for it to continue demands of that country a thousand times more circumspection, caution and endurance. It will be different in Western Europe; there it will be immeasurably more difficult to begin but immeasurably easier to go on.’ [40]

Thus the problem confronting the Russian and Chinese revolutions was that they occurred in backward countries confronting more advanced and powerful capitalist states organised in a world capitalist system of states. The only way out of this situation was for the overturn of capitalism to be extended to the more advanced capitalist economies. On the domestic economic front this meant using the levers created by the socialist revolution to raise living standards and strengthen the alliance between the working class and peasantry to act as a base of support for the extension of the revolution when and as this became necessary. That is why the original leaders of the Russian Revolution gave such enormous importance to the creation and development of the Communist International.

To develop the domestic economy, however, required not national isolation but, participating in the international division of labour to the maximum possible extent on the basis of a planned and socialised economy: ‘We cannot escape from capitalist encirclement by retreating into a nationally exclusive economy. Just because of its exclusiveness such an economy would be compelled to advance at an extremely slow pace, and in consequence would encounter not weaker, but stronger, pressure, not only from capitalist armies and navies (“intervention”), but above all from cheap capitalist commodities. ‘The monopoly of foreign trade is a vitally necessary instrument for socialist construction, under the circumstances of a higher technological level in the capitalist countries. But the socialist economy now under construction can be defended by this monopoly only if it continues to come closer to the prevailing levels of technology, production costs, quality, and price in the world economy.

‘The aim of economic management ought to be not a closed-off, self-sufficient economy, for which we would pay the price of an inevitably lower level and rate of advance, but just the opposite – an all-sided increase in our relative weight in the world economy.’ [41]

In terms of the international relations of a non-capitalist economy, therefore: ‘The greater the success of the development of the Soviet economy in the future, the more extensive foreign economic relations will have to be. The contrary theorem is even more important – it is only through a growing extension of imports and exports that the economy will be able to overcome in time the partial crises, to diminish the partial disproportions and to balance the dynamic equilibrium of the various sectors in order to assure an accelerated rate of development.’ [42]

This is precisely what the Chinese economic reform has started to approach in the sphere of its international economic relations – a success inextricably linked to the domestic economic reform. The expansion of foreign trade has now become even faster than domestic growth. China’s world export rank increased from 32nd in 1978, to 17th in 1987, to 11th in 1995.

The pattern is clear. First, it is China’s economic growth, as opposed to Russia’s collapse, which makes it attractive to foreign investors who are aware that, unlike in Russia, the Communist Party remains in power. China’s economic growth makes it a crucial market for entire sectors of the world economy. Large international companies face a situation where if they do not invest in China they may face elimination by their competitors in the world market.

Secondly, the priority given by the Chinese economic reform to the production of consumer goods meant it focused on the sectors in which it is easiest to become internationally competitive – because they require far lower levels of capital investment than heavy industry: ‘The proportion of primary product exports has been relatively small…exports have been predominantly of manufactures, 73 per cent in 1990, a considerably greater fraction than is typical in “low income countries”. It is interesting to note the contrast with some of the East European countries. Chinese exports appear to be largely the products of light industries – one third are textiles and clothing.’ [43]

Third, the Chinese government used its leverage, of a population numbering more than one billion in the world’s most rapidly growing economy, to exact concessions from foreign investors. For example, tariffs and other measures were used to pressure foreign companies to produce consumer goods in China rather than simply importing them (as with Russia). Where part of the production of such goods was for export, raising foreign currency which could be used to upgrade China’s technology, the government gave tax concessions to foreign investors. Similarly, firms competing for investment contracts in China had to offer transfers of technology, training for Chinese workers and even investment in infrastructure projects. For example: ‘In order to gain access and rapidly growing China market, Boeing was required to assist the main Chinese aircraft manufacturer in Xian to successively establish a capacity to produce spare parts and then manufacture whole sections of aircraft, and finally to assist in the development of a capacity to produce complete aircraft within China.’ [44]

Fourth, foreign investment then gave China access to international marketing networks and the know- how to improve the quality, presentation, packaging and advertising of Chinese goods – increasing its ability to export.

Fifth, once China’s position as a producer of consumer goods had been transformed, the enormous demand generated for improving the infrastructure and heavy industry, provided a further impetus to foreign investment. The Wall Street Journal reported: ‘Discussions about infrastructure are usually boring – until you come to China… Its infrastructure shopping list for the next decade is eye-popping: 40 airports; 114 metropolitan light railway systems; scores of ports, power plants, roads and bridges… “It’s the greatest market in the whole future of the world,” says Paul Donovan, president of Asea Brown Boveri Plant Systems… It’s no surprise that when Shi Dazhen, China’s energy minister, recently passed through Washington, some 200 representatives of US companies flocked to an impromptu appearance he made, and hung on his every word.’ [45]

The Financial Times recently noted: ‘China is regarded as the world’s fastest growing market for new aircraft… The US company [Boeing] estimates that sales of commercial aircraft in the country in the next two decades will be worth $100bn, making it the third biggest aviation market in the world after the US and Japan… the authorities are now turning their attention to improving airport facilities to cope with expected annual passenger growth of 10 per cent for the next 20 years, compared to a forecast worldwide increase of 5.1 per cent.’ [46]

This situation means that, far from becoming more dependent on foreign powers or susceptible to pressure by international capitalist companies, China’s economic growth is giving it the power to extract better deals from those foreign investors which it chooses to let into its economy.

Thus, on the basis of its domestic economic reform, China was able to move on to create a parallel ‘virtuous circle’ – increased consumer production, attraction of foreign capital, exports, improvement of quality and technology of production, greater consumer production, a wider variety of exports, and then, on the basis of thc resources generated by the first wave of development, the expansion of heavy industry and the whole infrastructure of the country. The result has been a huge surge not merely in output of the Chinese economy, but in its productivity. Far from making a virtue of isolation from the international division of labour, China has succeeded in turning it to its advantage on a colossal scale. Again, this was only possible on the basis, not of the free market, but a planned economy in which the decisive decisions are taken by the state, not private companies.

The expansion of trade, in turn, provides a significant stabilising factor in relation to China’s domestic economy: ‘On balance, trade was a stabilising force in China’s economy. Domestic economic fluctuations – which were considerable – were dampened by the ability to run large short-term trade deficits.’ [47]

The contrast with the ‘vicious circle’ into which the re-introduction of capitalism has locked Russia is dramatic. First, the break-up of the Soviet Union and the loss of markets in Eastern Europe, took the Russian economy in the opposite direction to what was necessary. One of the largest single factors in Russia’s economic collapse was the retreat from an economy of 280 million people to one of 150 million.

Second, under the guidance of the IMF, Russia has become an exporter of raw materials and energy – whose prices relative to manufactured goods have been falling for more than 100 years – driving the economy steadily down, not up-market, and trapping it in an historical dead-end.

Third, to release energy and raw materials for export, domestic consumption was cut, by raising their prices to world levels. The price of fuel has risen three times more than the prices of the food processing industry’s products and eight times more than those of light industry. This is a key factor in the unparalleled slump in Russian manufacturing industry.

Fourth, rising energy and other industrial prices, reinforced by falling living standards, led to an 85 per cent fall in output in light industry between 1990 and the end of 1995, alongside a catastrophic crisis in Russian agriculture with the worst harvest in 20 years in 1995. A pricing policy was followed which favoured energy and metals, the sectors which internationally are undergoing the greatest declines in prices, and require the greatest levels of investment per unit of output, at the expense of consumer production and agriculture.

Fifth, the consequent spiralling decline of its domestic economy means that even though Russia has had a government faithfully following the advice of the IMF for four years, it is one of the least attractive places in the world for foreign investment.

This contrast is clearly understood. It is illustrated by the regular humiliation of a Russian government dependent for its survival on assistance from the IMF whose conditions for further loans are precisely the continuation of the economic course which has produced the present situation.

Democracy, planning and the market

On the level of domestic economic policy, the Chinese bureaucracy has thus applied reforms which raised the material and cultural level of the Chinese working class. This in turn allowed the Chinese workers’ state to re-cement the alliances with both the peasantry and the urban petty bourgeoisie which were shattered by the economic strategy of socialism in one country.

But, the economic reform produces new contradictions. Any major stalling of economic growth would bring these into the open.

Democracy in China meets the objective constraint of the country’s overall level of development. To raise Chinese living standards to West European levels is the work of many decades even with the best conceivable economic policy.

State control of industry and planning introduced powerful levers for directing economic development but these are constrained by the real resources available to Chinese society. The market will remain for a very long time to come the only possible mechanism capable of coordinating the production of tens of millions of peasant households, small manufacturers, consumer services, shops, workshops and so on.

This situation dictates that hard choices in terms of the allocation of resources between consumption and investment, industry and agriculture, different sectors of each, infrastructure and social welfare, different regions of the country and so on, be taken on the basis of the widest possible input from the Chinese working class and peasantry. This implies, for example, that the trade unions be restored to their role of representing the views and interests of Chinese workers in state enterprises, collectives and joint ventures with foreign capital. Only in this way can the different demands on economic policy be resolved in such a way as to maintain as the first priority the raising of living standards.

Second, the very success of China’s economic reform was based upon achieving more correct proportions in the economy between consumption, agriculture and food production, light industry, services and heavy industry. The de-collectivisation of agriculture and re-creation of the urban petty bourgeoisie made possible a vast increase in the production and distribution of food. Planning and state control of industry allowed a move towards rational pricing, starting with changes to stimulate the production of consumer goods. The resulting development of light industry secured the alliance with the peasantry by making consumer goods and cheap inputs available to them in exchange, via a market mechanism, for food. The stimulus to agriculture and light industry allowed heavy industry to be re-integrated as a cog supplying the inputs to develop light industry and agriculture, rather than an end in itself.

But the proportions between the different sectors of the economy, the quality of their output, the levels of investment in each, have to be constantly re-appraised and altered in accordances with real economic development. This can only be done on the basis of involving the working class and petty bourgeoisie in making the basic economic choices and monitoring their results. Thus, the further advance of the economy requires the ever-increasing involvement of the working class in assembling the information, making the decisions and checking the progress of their realisation. This the Chinese bureaucracy refuses to countenance.

Third, having freed itself from accountability to those it claims to represent, the bureaucracy of the Chinese Communist Party is subject to widespread corruption. Because officials cannot be held to account, they can seize privileges, are subject to bribery and can use their control of the state and economic apparatus to accumulate capital. This opens a chink in the Chinese state to international and indigenous private capital – creating a pro-capitalist wing of the bureaucracy linked to capitalist forces outside the Communist Party. Without the ability of the working class to control and purge the bureaucracy, periodic campaigns against corrupt officials are ineffective – touching only the tip of the iceberg.

Fourth, market mechanisms themselves deepen inequalities – particularly the huge differentials between regions, between urban and rural areas and also through the emergence of genuine Chinese capitalists. Such inequalities require central government action to re-distribute income to the poorest parts of the country. A critical problem is that the decentralisation of tax collection has greatly reduced the share of central government in the economy and so decreased its ability to alleviate regional inequalities. The power of the central state to overcome such centrifugal tendencies which naturally are encouraged by international capital, depends crucially on its ability to draw the population directly into making the decisions about how to redistribute resources within different regions and sectors of the economy. Without accountability to the working class, the bureaucracy is susceptible to bribery by those with the means for this, in the richer regions to resist subsidies to the less developed parts of the country and so to transfer regional and class antagonisms into the Communist Party bureaucracy itself.

Fifth, the only countervailing force to such developments would be to increase the political weight of the working class in Chinese society at every level of decision making. But, that runs up against the fact that it would undermine the privileged positions of the bureaucracy. This role of the Chinese bureaucracy in atomising the Chinese working class stores up explosive contradictions for the Chinese Revolution because it weakens the most powerful force – the Chinese working class – capable of countering the pro-capitalist tendencies which must constantly re-emerge. While the success of the economic reform in raising living standards reduces the ability of imperialism to take advantage of those contradictions, they remain real and will emerge with even greater violence if economic growth falters. The Chinese bureaucracy is the most important transmission belt of the pressure of international and domestic capital against the Chinese revolution.

Where is China going?

To lead the Chinese Revolution to victory in 1949, the Chinese Communist Party had to break with the line of the Soviet bureaucracy, which opposed a socialist revolution in China. It thereby overthrew capitalism, and ended 100 years of colonial humiliation – symbolised by the former signs in Beijing parks, ‘no dogs or Chinese’ – in the most populous country on earth. Whatever their errors and subsequent crimes, Mao and the Chinese Communist Party led one of the greatest revolutions in history.

The Chinese socialist revolution was second only to the Russian Revolution in the weight of the blow it struck against imperialism and in its significance for world politics. Even before its victory in 1949, the struggle led by the Chinese Communist Party was a determining factor in the outcome of the Second World War because it prevented Japan from opening up a second front against the Soviet Union from the east – allowing the USSR to concentrate its forces against Hitler.

In Korea, the entry of the Chinese army into the war stunned the US and fought it to a standstill – making Korea the first war in history which the US did not win. In Vietnam, China played a crucial role in both the war against the French in 1946–54 and against the US in 1966–75.

Following the crushing defeats of the West European working class in 1923–39, the class struggle in Asia played the decisive role in the advance of international class struggle. On the most fundamental level of world politics, the period from 1949–75 was dominated by the clash between the working class and peasantry of Asia with the United States. This prevented the USA from concentrating its forces against the Soviet Union for the entire period from 1949 to 1975.

While the objective significance of the Chinese Revolution was a massive extension of the international revolution, the political line of the Chinese leadership was not this, but the construction of socialism in one country. This was even more utopian for China than the Soviet Union, because China started out on a far lower level of economic development. Soviet income per head in 1928 was three and a half times greater than in China’s in 1952.

On the domestic level this policy led China into an economic impasse. The attempt to collectivise agriculture through the Great Leap Forward resulted in agricultural production in the mid-1960s falling well below the level of 1957. The political terror and ultra-left course of the Cultural Revolution, which opened in 1966, further threw back the Chinese economy.

The Sino-Soviet split from 1960 – whose negative consequences for the international class struggle cannot be overstated – was a logical outcome of the strategy of socialism in one country. Each bureaucracy could argue that the Soviet bureaucracy could not tolerate an independent political leadership within the international communist movement because it would legitimise alternative views within the USSR. In 1960 it unilaterally withdrew its economic aid and advisors from China – at a time when China was the country most threatened by the military build-up of US imperialism.

The Soviet Union then paid a colossal price for Krushchev and Brezhnev’s bureaucratic chauvinism. Following the initial ultra-left turn of the Cultural Revolution, in the 1970s the Chinese bureaucracy made a sharp right turn in foreign policy to increasing alliance with the United States. If, from 1949 to 1975 the greatest weight applied against imperialism had been the struggle of the Asian workers and peasants, from 1975 the greatest relief provided to imperialism was the derailing of that struggle by the right wing turn of the Chinese bureaucracy. This culminated in the Chinese invasion of Vietnam and the military tension along the Soviet/Chinese border – including the establishment of a line of US listening posts in China.

In the Second World War and through to 1975 the Chinese Revolution and its extension in Asia had prevented imperialism from concentrating its forces against the Soviet Union. The consequences of the Sino-Soviet split after 1975, by undermining the class struggle in Asia, allowed the US to re-orient to cracking the Soviet economy via Reagan’s military build-up. That led to Gorbachev’s assumption of power and the crisis which ensued.

The US alignment with China was purely for the purpose of disposing of its principal military opponent – the USSR. This has not yet been achieved. Every poll demonstrates that the great majority of the Russian population rejects the capitalist economic course embarked upon from January 1992. If democracy is maintained in Russia, that economic course is going to be overturned. However, if capitalism were to triumph in Russia, the consequences for China would be grave.

Russia is the only country in the world with the military capability to destroy the United States. If that counterweight to the US were to be removed, the US would back up its demands on China by the threat and even the use of military force. The US gunboat diplomacy, with the despatch of two aircraft carrier battle groups to Taiwan at the beginning of March is just a foretaste of what is to come.

In strictly military terms China is no match for the United States – it possesses just a handful of nuclear missiles capable of reaching the US. Japan’s perspective is equally clear. While it could never stand up to the Soviet Union militarily, it has a simple strategy vis-à-vis China – the acquisition of nuclear weapons to counter China’s advantage in population.

Thus from the point of view of the international positions of both China and the USSR the political results of socialism in one country have proven to be as disastrous as the economic distortions it produced. They have helped put the Russian Revolution in even greater peril than Hitler’s invasion in 1941 and, if the Russian Revolution is overcome, they will expose China as the next non-capitalist domino which the United States and its allies will seek to overturn. The benefits to imperialism of the re-conquest of China for capital would far outweigh the temporary losses which would result for individual capitalist companies.

China and Russia

It is therefore on the field of foreign policy that the reactionary role of the Chinese bureaucracy is most clear. The right wing course of collaboration with US imperialism was maintained from the mid-1970s through to China’s refusal to use its veto in the UN Security Council to block either the Gulf War or the NATO intervention in the former Yugoslavia. However, as we have seen, that policy merely allows the US to bring forward its preparations to tighten its military noose around China itself.

US imperialism’s nightmare, however, is that in the event of a defeat for Yeltsin in Russia, there could be a realignment between China and a government overturning capitalist economic policy in Russia. A non-capitalist Russia would rapidly draw back together large parts of the former Soviet Union. It remains militarily powerful enough to vastly reduce the US nuclear threat to China. Its economy would not merely benefit from the lessons of the Chinese economic reform, but also has the potential in many fields to complement and gain from economic exchange with China.

There were signs prior to 1991 that the Chinese leadership were moving in that direction – to Washington’s extreme displeasure. In Russia, it is argued that alliance with China is the only possible counterweight to NATO expansion into Eastern Europe. Imperialism will do everything in its power to stop such a rapprochement between China and Russia – including military threats. But that does not mean that it will be able to prevent it. That would signify that the most damaging division in the international workers’ movement in the entire post-war period had been overcome – with immense positive consequences for the entire international class struggle.


The contrast between China, Eastern Europe and the former USSR shows that it is possible to reform a centraIly planned economy without creating either the economic collapse caused by the attempt to restore capitalism or returning to the distortions which destroyed popular support for the command economy created under Stalin and Brezhnev.

These conclusions have explosive political implications in the former USSR. In the former Soviet Union and Eastern Europe hundreds of millions of people have, in the space of six years, been reduced to desperate poverty. Simultaneously, large parts of the capitalist third world, notably Africa, have suffered an economic and social holocaust over the last decade.

In China, by contrast, the largest population in the world has enjoyed rapidly rising living standards for 17 years. Anyone who does not see the necessity to explain such facts has lost touch with the issues which determine the quality of life for the majority of the earth’s population.

China shows how one of the poorest countries in the world, having overturned capitalism, can develop its economy at a pace almost unprecedented in history. This means that the peoples of the former Soviet Union are going to understand, not merely that they were lied to when they were told that capitalism would bring prosperity and democracy (that is already understood), but also that their immense suffering was entirely unnecessary. The explosive political potential of that understanding was illustrated in Russia’s December 1995 parliamentary election.

A reversal of the capitalist economic policy in Russia would have immense attractive power to Ukraine, Belarus and other former Soviet states whose economies have been even more devastated since 1992. It would start to reverse the entire course of world history which followed from the events of 1989 and 1991 in Eastern Europe and the USSR. Finally, it would pose the possibility, not the certainty given the role of the Chinese bureaucracy, of a realignment of China with a non-capitalist Russia – the greatest blow which imperialism could conceivably suffer at the close of the twentieth century. Every socialist, and oppressed person, in the world has a direct interest in doing everything they can to contribute to such an outcome.


[1] Paul Bowles and Xiao-yuan Dong, ‘Current successes and future challenges in China’s economic reform’, New Left Review 208. p49
[2] Ibid, p49
[3] Wall Street Journal, 13 December 1993
[4] Economist, China Survey, November 1992
[5] China’s Rise, Russia’s Fall, Nolan. Macmillan 1995, p210
[6] Nolan, p22
[7] Financial Times 16 January 1993
[8] Nolan, p303
[9] Cited in Bowles and Dong, p54.
[10] Wall Street Journal, 3 February 1994
[11] Layard, 1993, pp 15–16, quoted in Nolan, p269.
[12] ‘Reforming a planned economy: Is China unique?’ in ‘From Reform to Growth: China and other countries in transition in Asia and Central and Eastern Europe, Naughton, OECD 1994, p70
[13] Jeffrey Sachs and Wing Thye Woo, ‘Understanding recent reform experiences of China, Eastern Europe and Russia’ in ‘From Reform to Growth: China and other countries in transition in Asia and Central and Eastern Europe, Naughton, OECD 1994, p25
[14] Economist 1995
[15] Nolan, pp8–9
[16] Naughton. p68
[17] Naughton. p50
[18] Naughton. p70
[19] Trotsky, ‘The Soviet economy in danger’. Writings 1932, p274
[20] Bowles and Dong, p67
[21] Nolan, p4
[22] Naughton, p66
[23] Nolan, p199
[24] E Gerrard Adams, ‘Economic transition in China: What makes China different’, in ‘From Reform to Growth’, p219
[25] Nolan, p199
[26] Nolan, p207
[27] Adams, p216
[28] Bowles and Dong, p65
[29] Nolan, pp191 and 200
[30] Bowles, p64
[31] Bowles, p55
[32] Nolan, p175
[33] Nolan, p205
[34] Nolan, p217
[35] Nolan, p218
[36] Nolan, p219
[37] Nolan, p219
[38] Nolan. p221–2
[39] Nolan, p222
[40] Lenin, Collected Works, Vol. 27, p291
[41] Trotsky, ‘The platform of the left opposition’, in The Challenge of the Left Opposition 1926–27, pp 334–336
[42] Trotsky, ‘Successes of socialism arid the dangers of adventurism’, Writings 1930/31, p104
[43] Adams, p222
[44] Nolan, p188
[45] Wall Street Journal, 13 December 1994
[46] Financial Times, 31 January 1996 47 Naughton, p66