China – capitalism on the march

China – capitalism on the march

On certain sections of the left (those sections still in denial about the collapse of Stalinism) there is a desire to pretend that China remains in some form a “socialist state” or “workers state” or “centrally planned economy”, writes Bill Jefferies...

This assertion essentially rests on one single fact, namely that the Chinese Communist Party (CCP), the same party that once overthrew capitalism back in 1952 was the party that oversaw the restoration of capitalism in around 1992 and is now determined to continue the transition of the Chinese state, from being a poor semi-colony into an imperialist power in its own right.

Mao’s portrait may continue to hang over Tiananmen Square; the red flag (with yellow stars) may flutter by its side, but in no other respect can China be considered in any way a “socialist” society.

A recent OECD report “FAST-FALLING BARRIERS AND GROWING CONCENTRATION: THE EMERGENCE OF A PRIVATE ECONOMY IN CHINA ECONOMICS DEPARTMENT WORKING PAPERS No. 471 By Sean Dougherty and Richard Herd” (available through www.oecd.org/eco) surveys the extent to which China is now a private market economy.

The paper examines the structure of the Chinese economy and in particular the extent to which private i.e. non-state firms have grown within it. One index of this is the proportion of transactions across the economy, which now take place at market rather than planned or "state fixed prices."

Table 1. Share of transactions conducted at market prices

Per cent of transaction volume

Year	1978	1985	1991	1995	1999	2003
Producer goods
Market prices	0	13	46	78	86	87
State fixed	100	64	36	16	10	10
Retail sales
Market prices	3	34	69	89	95	96
State Fixed	97	47	21	9	4	2.6

In 1978 all producer goods had their prices fixed by the state, by 2003 just 10%of them did. In the retail sector, in 1978 97% of prices were fixed by the state, in 2003 just 2.6% were. The class character of the state, the property which it defends is unequivocably proven by its actions. This state has overseen the transformation of a planned economy, into an almost entirely deregulated capitalist one. There is no further argument necessary China is a capitalist state and a very fast growing one at that.

The tipping point is between 1991/1995 when the market reforms that were steadily introduced by the CCP from the 1970s onwards became the predominant form of production. This coincides with the decision of the 1992 14th Party Congress of the CCP to support a “socialist market economy with Chinese characteristics.” they were certainly successful in the first intention, as for the second – well...

The use of these figures for the proportion of output produced under market conditions, enables a much better appreciation of the development of capitalism in China than simply looking at the ownership of firms, what the above table proves is that even where the firms continue to be state owned they now produce according to the law of the market not the plan.

Through a detailed study of “the industrial firm database of the Chinese National Bureau of Statistics (NBS)… (though) the 1998 to 2003 period and include all industrial enterprises with annual sales in current Yuan of CNY 5 million or higher.6” p6

The authors show that there has been;

“… a rapid shift toward private ownership in China amongst firms with more than 5 million yuan in annual sales (Table 3). Classification by controlling shareholder shows that the private sector has grown from 27.9% of industrial value added in 1998 to 52.3% in 2003. Individually-controlled firms’ share has grown most rapidly, representing almost half of this increase, with the remainder of the gain split equally between companies (controlled by legal persons) and non-mainland shareholders.” (p7)

And necessarily therefore;

“At the same time as the private sector has grown, the state and collective controlled sectors have fallen. The share of value added directly controlled by the state fell from 38.9% to 22.9% over the five years 1998–2003. While several percentage points of this drop may represent a shift toward indirect state control, the remainder occurred through the closure, restructuring, and privatization of enterprises. The collective controlled share has also fallen rapidly, as many of these firms have also exited or changed ownership.” (p9)

And the proportion of output accruing to private firms has not only grown massively, private firms now predominate in all sectors of production barring mining and utilities;

“In 1998, the private sector produced the larger share of value added in only 5 out of 23 “non-core” manufacturing industries.10 By 2003, this was true for all 23 of these industries.” (p10)

And privately run firms are particularly significant in the leading most advanced sectors of the economy which produce the bulk of the exports which have driven the transformation of Chinese capitalism over the last decade.

“An overwhelming share of private industrial output is produced in the eastern coastal region (Zhejiang, Guangdong and Jiangsu provinces), that has been at the forefront of all types of reforms. In this region the share of industrial value added from the private sector is 63% against only 32% in other regions. These other regions are about five years behind in the development of the private sector. However, the central, western, and north-eastern regions’ private sectors have been growing faster than the coastal areas’ over the five years to 2003, suggesting that catch-up is underway.” (p10)

What is happening on the coast today, shows the future of Chinese capitalism, it is the direction in which the entire economy is moving and at an increasingly rapid pace.

But while the trend is towards the privatization of the entire economy, the total dominance of private firms remains limited to the smaller enterprises with less than 1,000 employees.

“…with private entities controlling 81% of the firms in the dataset with under 1 000 employees, compared with only 36% of firms with over 1 000 employees.” (p10)

The largest firms, remain in effect state capitalist enterprises, supported and controlled by the state in order to produce massive conglomerates, Chinese champions, or trans national companies, which can oversee the transition of Chinese capitalism into an imperialist power.

The authors have accurately described the domination of the Chinese economy by the law of value, the growing proportion of output produced by privately owned firms, the growth of these firms and their spread across the whole economy, but particularly in the most dynamic high tech export oriented sectors and how the relatively backward inland regions are following the same path as their coastal predecessors.

They run into problems however, when they go on to discuss the Total Factor Productivity (TFP) of state firms relative to private firms. Loosely, the TFP is the amount of value accruing to the total capital investment of the capitalist. The amount of profit contributed by each part or "factor" of the capitalists investment. It assumes that each “factor” labour, land and fixed capital, must “earn” profits, proportionate to its relative size. This is absolutely true from the point of view of the individual capitalist but blurs over the origin of surplus value in labour. Labour is the only “factor” that can create a larger amount of value than it cost to produce and therefore only labour can be the source of surplus value or profits.

The TFP describes how that surplus value is redistributed by competition across the capitalist economy in order that an average rate of profit can be arrived at.

The authors want to to prove that the private sector is twice as productive as the nationalized sector, to promote the continued privatisation of the Chinese economy;

“While labour productivity in the private sector, outside the resource-based sector, is nearly the same (2% lower) as in the state sector, which uses almost twice as much capital per worker. Put another way, capital intensity in the private sector is one-third that of the public sector as a whole but labour productivity is just 15% less.” (p11)

So although labour productivity, the real source of surplus value, is lower in the private sector than in the nationalized sector, the authors conclude that because the private sector uses less fixed capital, in other words the value of its machinery, plant and so on is lower than in the nationalised sector, it actually yields a higher rate of profit for the investor, in other words its total factor productivity is higher. But are they right?

Their estimates of capital stock, the key difference between the nationalized and private sector are based on values for “the book value of fixed assets”. This assumes that these fixed assets were paid for.

But an ironic twist of capitalist restoration was that a large part of these fixed assets were stolen from the workers state, the centrally planned economy, by the capitalists. They cost the capitalists nothing.

In the steel industry as one notable example, massive investments have taken place over the last 15 years, which have completely restructured the industry, but nonetheless this sector remains based on the old nationalized industry - which while it has a very high book value i.e. it would cost an awful if it was sold, it actually originally cost the capitalists who run it today – nothing.

This completely distorts the figures for the relative TFP of the nationalized and the private sector because the book value of the nationalized industries assets does not tell us how much they actually cost. This has the effect of grossly underestimating the rate of profit in the nationalized sector.

But even so the nationalized sector has still seen its “net operating surplus has risen markedly, bringing about a near-doubling in the rate of return to physical assets.” Since the end of the 1990s.

As the process of privatization continues the scale and concentration of enterprises accelerates. The transition of China into an economy dominated by monoplies, is gathering pace. China now has 15 Fortune 500 enterprises in 2005 according to this report; the latest figures from the Deutsche Bank suggest that this has risen to 20 by 2006.

How soon it will be before China has completed its transition into an thorough going imperialist economy remains a moot point, while the trend towards monopolization continues very fast, China still remains relatively under monopolized when compared with the US.

The report concludes however;

“The rapid emergence of a substantial private economy in China that is controlled by non-public entities and faces market prices has transformed the productive landscape and driven up profits in the five years to 2003….and have created a highly dynamic segment of the economy that is founding new businesses and expanding them geographically through retained earnings and acquisitions, creating improved regional concentration of production, filling the void left from the downsizing of the state and collective sectors.” (p26)

The breath taking advance of China’s capitalist development is the most striking sign of the renewed dynamism of the world economy with the advent of the globalization phase of imperialism since 1990.

In future articles we will examine the limits of that advance and the potential contradictions which will shape the world over the next ten years.

Sat 14, October 2006 @ 13:21