#84 Chinese Economic Growth after Mao: Part 2
After Mao died in 1976, China turned out towards the rest of the world. This alone distinguished China’s growth from that of the Soviet Union. Some western economists have argued that China’s success is due to her outward orientation. This might have been correct if her economy had not been growing earlier. However, China created coherent development strategies from 1949 onward. She opened her economy to the rest of the capitalist world after the end of the 1970s – a point in history when the capitalist world was beginning to develop its own 'neo-liberal' system of globalisation[i]. This was just at the time when the West created the conditions for the free movement of capital. Neo-liberal policies were consciously intended to allow Western corporations to move their factories to where labour was cheap. At the same moment in history, China was opening her doors to receive Western companies who wished to use the cheap labour of China, spare resources, and industrialisation: the build-up of spare capacity.
Deng Xiaoping with US President Jimmy Carter in January 1979. After Mao Zedong's death in 1976, Deng Xiaoping gradually rose to supreme power and led China through a series of far-reaching market-economy reforms earning him the reputation as the "Architect of Modern China".
Neoliberalism in the West and How China Benefited
In the Western countries, the USA came off the Gold Standard in 1973, a year after Mao died. Alongside the demise of the Gold Standard came global neoliberalism. As I’ve discussed in previous blogs, the USA was able to enforce neoliberal policies throughout the Western world. The pursuit of neoliberal policies created the global conditions which led to the export of factories. China then provided cheap labour. Out of this factory export, China was able to build up her dollar reserves. She was able to use these surpluses first to industrialise, and then to expand across the world.
One of the enigmas of the 20th century was how the United States created the conditions for all this to happen. China benefited hugely from this massive movement of capital development resources from the West to China. China has been able to build up a vast surplus of US dollars, as she exported Western company made goods back to the West. The basis of her global policy in the 21st century was the consequence of her encouragement to manufacture Western company goods in China. ‘Made in China’ is now the norm for the simplest of products. The miles and miles of industrial areas that sit beside China’s cities are a testament to this growth in production. Take a car ride through a Chinese industrial area to see for yourself the size of these complexes.
One more point worth considering before we leave this subject of 'opening to the West'. It cannot be emphasised enough just how important this strategic move has been to China at almost every level. Western global manufacturing companies crowded into China's cheap labour economy from the 1970s onwards. Most of these goods were then exported back to their home country and across the world, earning exchangeable US dollars. The Chinese treasury built up a treasure trove of the world’s single exchangeable currency: the US dollar. This answered one of the key dilemmas for every nation that attempts to industrialise: where to find the US dollars to buy the machinery they need to industrialise before they begin industrial exports themselves without going to the IMF or World Bank which requires deep internal changes in the economy they lend too?
Not only did China's open policy to Western global companies succeed in answering this dilemma; they have been able to accumulate sufficient US dollars to become a global player in their own right, as I shall illustrate in the coming section.
China and Farming
Chinese agricultural growth has gone through several phases in 70 years and must be understood as part of these massive urban and industrial changes. The peasantry was an essential part of the success of the revolution. Legal access to land has been guaranteed, despite the huge numbers of people who have left the land for the cities. This guarantee has been part of Mao’s revolutionary heritage. The CCP has always realised the importance of the need to feed the growing number of urban peoples. Rural productivity has always been a serious challenge. Land has remained state-owned and organised as collectives.
In 1956, only seven years after the initial revolution, cooperative farming was driven into larger collectives and the townships were used as the HQs for these larger entities. 40,000 cooperatives organised 400 million peasant farmers to best utilise farm machinery. This collectivisation expropriated peasant holdings. The aim was to industrialise farming. The Chinese state-owned Agricultural Bank was mandated to provide finance to develop these so-called peoples communes. Villages became part of agricultural communes in 90,000 units. In practice, the people’s communes increasingly went into debt as the state kept food prices low and allowed industrial products to increase in price.
Diverse Crises and the Chinese Economy
The Chinese economy has had to meet several internally created crises over its relatively short life:
The first came in 1957 when the leaders of the USSR fell out with their Chinese counterparts. In 1956, China had taken back from the USSR Port Arthur and the Zhongchang railway. In response, the USSR abruptly ended its industrialised support systems, which created a major crisis between 1960 and 1962. Soviet investments had meant that China did not have to use foreign exchange to buy capital intensive industrial equipment. For 10 years, imports of industrial technology caused severe difficulties.
The second crisis occurred during the Cultural Revolution, between 1967 and 1968 when Mao attempted to industrialise the economy using the rural areas. This failed and the economy faltered during these two years.
The third crisis occurred at Mao's death in 1976, when the future of the Communist Party and the next leadership remained in doubt.
The fourth and final internal crisis occurred during the upsurge of the students during the Tiananmen Square protest in 1989; again the economy faltered before it again picked up speed.
Overall, China's economic revolution over the period since Mao took power in 1949 to the present time has been some of the most remarkable in the history of industrialisation. Within a short 70 years, during many Chinese people’s lifetime, their world has been turned upside down. China is now on the way to becoming the world’s most powerful nation. So far, Chinese leaders have been able to navigate both internal and externally created crises. The social and political mechanics available to the Chinese leaders are foreign to Western peoples; in particular, the role of the Communist Party sits uneasily in the complex.
The Chinese Communist Party
The Communist Party plays a role in all aspects of Chinese life. It is said that there are 100 million party members, which is between 7 and 8% of the total Chinese population. All companies employing more than 100 people have an internal party cell-based control system. This structure is set up consciously to maintain party control of the entire economy. All senior promotions in the banks, regulators, government ministries and state-owned enterprises are controlled by the party. The handling of the national economy human resources is undertaken by the party. China’s communist party plays a critical role in every major and minor company and organisation throughout China. The Communist Party provides a solid basis for class formation throughout the land.
Whatever Western readers may think of such an alien system, it provides every enterprise with an organisation within an organisation. The Communist Party has a strong idealistic element, which can be seen by anyone who has stepped inside any socialist organisation. Throughout Southern countries, there has been a continuous flow of complaints of corruption at many levels. While corruption has not been eliminated within Chinese politics and her economy, the party apparatus provides a shield that has been and is being used by the leadership to control it.
Inequality
It is often asked, in Western circles, whether the Chinese economy is in fact a new form of capitalism. Many well-meaning political economists think so. The inequality between wealth and income is very high. Inequality is often measured by the Gini coefficient as an index of income inequality. In 1978, China's Gini coefficient was 0.30 and has risen to over 0.40, showing that inequality is rising. The number of Chinese billionaires has also increased significantly.
China's own characterisation of her society as ‘socialism with Chinese characteristics’ is a strange animal. Equality and inequality within such a huge society as China is hard to characterise, especially as so many peoples have moved recently into urban life. China remains a country in movement. What we can see are some of the following features:
The Chinese state controls the public ownership of the means of production, and state planning is dominant
The Communist Party’s power is rooted in public ownership
There has been a definite expansion of privately-owned companies, both domestic and foreign, over the last 30 years, including the creation of a China-based stock exchange
Most of the investment is undertaken by publicly owned companies
The ownership of public sector assets is valued (according to the IMF) at 150% of GDP, compared with 50% of GDP in Western countries
The major banks are state-owned, and their lending and deposit policies are directed by the government
Capital controls are imposed and enforced, and the currency value is manipulated to set economic targets
Readers must decide for themselves what all the above means in determining the character of China today. The most likely conclusion would be that this is a state living within a capitalist world, attempting to create a socialist society. In a word, it is a work in progress.
[i] It is paradoxical that just as the Western world had decided that they no longer needed to provide social support inside their economies to keep off the attractions of socialism. China was able to benefit hugely from the ‘export of capital’. Ever since the early 1970s, all Western nations have followed neo-liberal economics. It should not surprise anyone that the neoliberalism movement in the West, coincides with the rapid growth of the wealthiest, and impoverishment of the poorest – exactly as had happened in the 19th century in Britain and France.
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The peoples of Western Europe had risen from one world of relative poverty and had learnt how to take the wealth from the Americas and transfer it to their own countries. This was slavery and latterly until 1920, indentureship. A whole set up of banks, shipping companies, and insurance companies had arisen to make these transfers possible. From the 1750s the European invaders turned their attention to Asia and systematically began the colonisation process anew. At the same time, as they attempted to colonise and extract the wealth of Asia, the colonising countries began the process we now recognise as industrialisation alongside the rapid growth of cities. The surplus resources extracted through colonisation were used to finance the growth of new industries.