‘China’s communist political system now relies increasingly on a capitalist form of industrialisation for its legitimacy’.
I intend to show that the Communist party (ccp) is relying on capitalism to save it from destruction. This is a change in strategy rather than faith in markets.1will use Galbrathian analysis to show how politics and economics influence each other. How the ccp has had to continually adapt to changing circumstances to ensure its continued survival, and I will use Kornai’s idea of a true market system and measure whether China fits his model
The collapse of the Russian communist empire terrified the ccp as they could be next. The economy had stagnated, internal divisions within the ccp which have always existed intensified, as to the best way forward. Under the then premier Deng the state started to practice elements of capitalism from the late 70’s.
China’s main asset being its large population, free trade areas were created mostly along its coastal region with port facilities, to make trade and investment easier. Foreign multinationals encouraged to take advantage of cheap Chinese labour, which they did. The ccp has tried to manage this process as capitalism has been unleashed. Any system of rule must to some extent rely on consent. In a democratic system this consent is through a multi party system, in China force is often used.
Any success or failure must rest at its door unlike a multi party system where blame can be apportioned. Since the ccp party is acting on behalf of the ‘people’ and its intention to take the Chinese people towards a socialist paradise which they are incapable of realising for themselves.
For Kornai (journal of perspective.2000) a capitalist system must give primacy to absolute property rights, a political system that backs this through a legal system and dominance of the market in exchange relations.
One of the first things the ccp has done is to recognize property rights in law. Closer inspections of the property laws have serious flaws. The ccp party has endorsed people’s right to property which is not the same as Kornai’s absolute property rights. The party retains the right to the land on which much property is built. On infrastructure like motorways, schools, hospitals the party uses private/public investment and private contractors to build. The private sector is allowed to make profit over an agreed number of years e.g. 25 years for a toll road, after which ownership is transferred back to the state.
Some state industries have been privatized, some sold to managers, employees, foreign investors, but many still remain in state control. Private business is tolerated, but if state interests are threatened the ccp acts quickly without due legal process. As an example because of rampant property speculation the ccp party has imposed a property tax within 24 hours.
With state owned enterprises (soe’s), foreign direct investment has been targeted towards industries which the state wants to develop, a form of alliance capitalism as in the car industry, enabling investment and technology transfers.
The private sector is too small as yet to develop a substantial industrial base. The private sector and much of China’s export market is in low value, high volume output, and low tech exports. Many soe’s are being reorganized in such a way that they are often run by professional managers on a commercial basis, with ownership in ccp hands, there are continuous movements of professional personnel from one industry to another, this hybrid system does not accord to kornai’s idea of a true capitalist system.
State controlled banks continue to support soe’s, often at the expense of the private sector. Many state banks are insolvent as they have been financing the expansion in infrastructure development, and without state support they would have gone bankrupt. Lending is restricted by the state, informal lending is severely punished.
The law is not equal in China, as the legal system is not independent of the state, rule of law and one party state are incompatible. The party continues to interfere in all aspects of China’s economic and social affairs, including banning a popular talent show, restricting internet sites, locking up human rights activists. Any questioning of the party’s legitimacy is brutally put down. The expansion of the economy has enabled the party to strengthen its hold on power. China’s sovereign wealth fund is roaming the globe looking for assets and securing resources where it can.
Despite China’s incredible development through embracing capitalist.Politicaly the party is very vulnrable.The party believes it can control capitalism that could be its undoing. It also believes that an emerging middle class is going to drive the economy to the next level from low level manufacture to a consumer led society.
Francis Fukuyama (democracy lecture. Long foundation.yutube) has said that once a country reaches $8000 gdp per person people demand more political representation. As a safe guard against this possibility, the ccp now allows local elections where people can choose who they want to represent them, as in Beijing. With the private business sector the party has co-opted some well known business people into the party hierarchy.
Despite these measures the party is not very transparent in publishing accurate, credible accounting data as to the true financial position of the Chinese growth figures of 9-10% have been questioned by people like Mit economist Lester Thurrow (mit world. Lecture series), who has come to the conclusion that the China’s gdp growth is half of what the party states. He did this by looking at energy use and apportioning it between domestic and commercial.
China has recently joined the WTO, which is interesting as it has shown blatant disregard for patents and intellectual property rights, one reason Microsoft refuses to make major investments there.
The party’s annual budget statements cannot be independently assessed. Despite this the party has not remained static. It has adapted politically to the new realites.The budgeting process has been made more transparent,imputs to the process have been improved, more people are being appointed with expertise and not just political appointies.The party has sacked people for corruption, with well publicized cases(mostly lower order party officials).
For the ccp there remain huge social and economic problems which party and capitalist development cannot solve alone. China’s rapid industrialization is causing huge environmental problems, with bad air and polluted rivers. Capitalist development has created huge gaps between rich and poor, two thirds of the population (800 million) are still rural and poor by western standards. The rural urban migration is causing social problems in the cities. no job security, exploitation of workers, labour disputes on a daily basis, unions not allowed, workers increasingly petitioning the ccp to improve their working condition, wages rising making parts of the economy uncompetitive as in garment manufacturing, more jobs lost than created, with the rise in the informal economy, untaxed and unregulated, increasing pressure on resources of cities of water,housing,schools,jobs and basic amenities is giving city planners headaches, the rise of shanty towns as in Beijing.
By embracing globalization the ccp has connected 1.3 billion people into the world economy. This has raised the expectations of the Chinese people to western living standards which the ccp cannot hope to fulfil for all its people, its legitimacy is being tested daily as it is spending more money on internal repression. Although many Chinese people still support the hierarchy of the party, but often not local party officials who they believe to be incompetent and corrupt.
There seems a Chinese puzzle the soe’s are becoming richer and more powerful as the state sector shrinks, they have a vice like grip on key aspects of the economy.121 soe's are worth $2.9 trillion in 2010,although their share of gdp has declined, in 2009 85% of China’s $1.4 trillion dollars in bank loans went to soe’s(www.Economist online).The party operates through two institutions the assets supervision and administrative commission and the communist party organization department, it regulates pay and appoints and rotates bosses of the soe’s.Managers of soe’s often alternate between the soe’s and government, this allows politicians to change soe’s and soe's to change government policy. Chinese state companies have been buying up profitable private companies, while many private sector business have been going to the wall, the state companies borrow at 2.6% while private ones at 4.7%(Economist online).The party has created a uneven capitalist playing field, supporting soe’s at the expense of private business.

China’s embracing of capitalism is more strategic than ideological.Kornai’s idea of a capitalist state does not apply to China. China is practising state sponsored capitalism. Key sectors of industry remain in public ownership, despite the rise of a private sector. The private sector seems to provide a supporting role for the state sector. Although China’s soe’s are small in number they are gigantic corporations, like China telecom which has 600 million customers. China is guiding the industrialization of its country and securing firmly its hold on power, through increasing ownership of capitalist development and the means of production.

                                 China's embrace of capitalism to bring prosperity for China's concept of the Good Society.There are a few problems of capitalism which the Chinese Communist party  finding tough to tackle.under the old Communist system the Chinese could make every body poor,under capitalism you cannot make every body rich.The capital flows leaving China as yet are not impacting on the economy in a serious way,but the billions leaving the country will weaken the economy.

                                    So the Chinese are finding it is tough to create the Good Society under a capitalist system.It will be interesting how China deals with these issues.

                                        Kind Regards Tiger Moto


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