It is a critical time for the global economy, and many are watching China. It is not easy to understand China’s inner nature, especially since China is ruled by a secretive Communist Party that no longer openly insists on Communist ideas. Yet, the Communist Party remains in control – a point often missed by businessmen who travel to China. As Richard McGregor points out in his book on The Secret World of China’s Communist Rulers, there are hidden party structures that ultimately determine China’s economic life, China’s foreign policy, China’s military buildup and, by extension, China’s global impact. China is a major economic player with a vital role to play. The question is, what role will it play in the ongoing crisis of capitalism?
Typically we think of Communism as incompatible with capitalism. Yet, Communism has always made use of capitalist methods. The official Communist retreat into “state capitalism” actual began in 1922 in the Soviet Union of Vladimir Lenin. It was called the New Economic Policy under which the Soviet economy was originally consolidated by virtue of capitalist experimentation. After the death of Mao, China’s Deng Xiaoping proved to be a student of Lenin. He brought the New Economic Policy to China, enlarging Lenin’s program into a more comprehensive system for building Communism through capitalism. And as Lenin’s New Economic Policy was part economic liberalism and part deception, so is Comrade Deng’s “socialist Market economy.” In Communist history the retreat into capitalism has always signified a deceptive compromise. Deng never downgraded the ideology of Marxism-Leninism. What he opposed was the stupid economic policies of arrogant functionaries who had no idea how to build a productive economy. As Deng famously said in 1961, “I don’t care if it’s a white cat or a black cat. It’s a good cat as long as it catches mice.”
The fact that Communism doesn’t work was understood from the beginning. On 27 March 1922, in his Political Report to the Eleventh Party Congress, Lenin explained that Communists were good revolutionaries and not good businessmen. Therefore, Communists needed to learn business from the capitalists by returning (for as long as needed) to a familiar capitalist type of economy. “Do not put on airs, do not be conceited,” he warned his comrades, “because you are a Communist while there is some nonparty salesman … who can do things economically … that you cannot. If you … realize this, you will attain your object, because this is something that can be learned.”
Because China follows Lenin’s dictum, foreigners are easily confused as to China’s real “object.” China is both Communist and capitalist, and this is confusing. We would prefer to see one face or the other, but there are two faces. “China combines the worst of socialism with the worst of capitalism,” wrote Guy Sorman in The Empire of Lies. This statement may be truer than any other written by a foreign observer. China has seen 26 dynasties come and go, and if the Communist Party falls it won’t be bloodless. Millions of Chinese Communists have reason to fear for the future; and economic breakdown is the thing they fear the most.
Despite decades of high economic growth, the Chinese economy might suffer a dislocation at any time. In Richard McGregor’s book we find the example of the Chinese banking crisis of the late 1990s. Because of the way in which the Chinese banking sector operates, by 1998 roughly 57 percent of all loans issued by China’s biggest lender (the Industrial & Commercial Bank of China) were “unrecoverable.” As McGregor explained in his book, “[Within] the whole [Chinese] banking system, 45 per cent of loans made before 2000 had gone bad.” In response to the crisis, the Politburo of the Chinese Communist Party set up two party committees to take charge of the country’s financial system by assuming the power to hire and fire anyone who worked in a bank. Consequently, in China, the banks are totally subservient to the Chinese Communist Party. Any bank that refuses to accept the Party’s dictates would simply be closed down. Not too surprising, news of the Communist Party’s effective control of the banks has been suppressed by threats issued to newspapers and other domestic media outlets. If anyone wants to understand the meaning of the term “market socialism,” there it is.
For those who credit the economic theories of Ludwig von Mises or Friedrich Hayek, it is worth asking if the Chinese economy was built on a sounding footing. After all, there are bound to be corrections dictated by the market; and an economy enjoys true health to the extent these corrections are allowed to play out. If the state intervenes to prevent the pain then the country’s growth is something of an illusion. Without any doubt, China has its share of troubles. On 28 June Fortune Magazine published a piece by Katie Benner titled China’s Debt bomb. Here we read about China’s real estate bubble. We also read about “an untold number of bad loans.” (Here we go again.)
Yet the Chinese are being heralded as financially superior. On 25 June The Telegraph (UK) published a piece titled Enter the Dragon ‘to save the euro’ in which it is reported that the Chinese were looking down on the British as economic weaklings, and preparing to save Europe from its financial woes. At the same time, Chinese diplomats were demanding access “to every area of UK technological expertise” even as Chinese premier Wen Jiabao “gave a strong pledge of support for the embattled euro.”
China’s economic clout comes from what some would call “unfair” trade practices, and an inexhaustible supply of cheap labor. Of course, cheap labor signifies widespread poverty. To understand China’s “wealth” in context, we must remember that in 2004 the average gross income in China was calculated as $4,397. Seven years ago the average firefighter in China made $131 per month. (See Worldsalaries.org.) The ongoing poverty of the Chinese people should not be confused, however, with the wealth and power of the Communist Party of China. While the Chinese people work for low wages, the Communist Party wields considerable financial power.
To what end, however, do the Chinese Communists wield this power? And why do they cling to the Communist label? The Chinese leaders are determined to build a militarily strong country. As Chinese theorist Yan Xuetong explained, “You can still have a rich state with poor people.” He further explained that a strong state is best, because it brings “dignity to all.” Many powerful states have followed this model. So when it comes to the fate of the dollar, or the fate of the Euro, we must not imagine that the Chinese will act to maximize their people’s wealth; rather, they aim at maximizing state power; and as Moa Zedong once explained, “Power comes from the barrel of a gun.”