The Chinese state and the resurgence of the bourgeoisie (1978-2022)

Winter 2022

This article is a translation from the journal “Lutte de Classe” No.226 October 2022, which looks at the crucial role which the Chinese state has played in the development of China’s capitalist class.

For 30 years now, the Chinese bourgeoisie has been undergoing rapid development.  Today the Chinese economy is now largely subject to the laws of the market and competition, with a large number of enterprises in private ownership, whereas in the 1970s it was still entirely administered by the state.  A small, but privileged group of people are making ever-increasing fortunes.  Four million Chinese are dollar millionaires and the number of dollar-billionaires is now close to one thousand!  The western media have put this spectacular resurgence of the bourgeoisie in China down to the return of the market economy.  But they are silent about the essential role played by the state, except when the Chinese government decides to attack a few big bosses, as it did with the CEOs of Alibaba or Pinduoduo.  Then they do not hesitate to criticise the Chinese dictatorship and the limits it imposes on the free rein of private property, even questioning the sustainability of the presence of western capitalists in China.  Yet there is a close link between the Chinese state, its power and authoritarianism, and capitalist success in China.  And it is this link that explains the multiple facets of the new ruling class.

Thirty years of primitive accumulation

This complex relationship is first and foremost the result of a long history, starting with China's humiliation in the 19th century by the imperialist powers when they put the two-thousand-year- old empire under their tutelage, and continuing through the nationalist revolution, which spanned the first half of the 20th century.  When the Chinese Communist Party (CCP) came to power in 1949, the objective of its leaders was to turn China into a developed, modern country, no longer plundered by imperialism, so that it could hold its own in the concert of capitalist nations.

    The relationship between the Chinese bourgeoisie and the nationalist regime – labelled “communist” - underlines one of the essential differences between the Chinese and Russian revolutions.  In Russia, in the early years after 1917, the revolutionary mobilisation of the working class expropriated the bourgeoisie when it became an obstacle to workers’ power, but in China, the proletariat was asked only to applaud, as a passive spectator, when Mao's army entered the cities.  The CCP valued “national patriotic” capitalists.  The shareholders of the companies, which were then almost all private, received dividends, set by regulation at 8%.  The main problem came from the capitalists themselves.  As soon as the defeat of the Kuomintang loomed, many frightened capitalists transferred their wealth abroad, or to Hong Kong or Taiwan, often leaving a family member behind to represent their interests. They evaded taxes on a large scale, sabotaged state orders and paid bribes to whomever they needed.  In short, the bourgeoisie behaved as it usually does. It threatened the foundations of the new power and made any meaningful national development impossible anyway.

    Thus the regime, which wanted to pull the country out of underdevelopment while being isolated by the Western embargo, was led in 1955 to nationalise, to buy-up in fact, the industrial and commercial enterprises.  It met little resistance.  The management of the nationalised enterprises was often entrusted to the former owners, who were elevated to the rank of ‘patriotic national capitalists who courageously take the path of socialism”.

    For more than twenty years, therefore, the state organised and directed most of the country's economic activity, allowing for significant progress, while maintaining a certain egalitarianism.  The whole population lived in poverty, but agriculture was eventually modernised and yields increased.  Industrial output, which had started from a very low base, grew by an average of 9% per year.  The proportion of Chinese who could read and write rose from 20% in 194-9 to 75% in 1978, and life expectancy rose from 38 to 64 years over the same period. In short, contrary to western commentators' oft-repeated “analysis”, “statism” had not slowed down China's development; it had, in fact, made it possible - achieving a sort of primitive accumulation that would prove essential for the future.

    In the early 1970s, the US abandoned its embargo, gave China the seat on the UN Security Council previously held by Taiwan and resumed trade relations.  The ruling circles then undertook to return to a market economy.  They sent their children to study in the United States, and re-connected with the global market.  “It doesn’t matter whether the cat is back or white, the main thing is that it catches the mice”, said Deng Xiaoping, to justify opening up the economy to the private sector.

Bureaucratic capture

From the early 1980s onwards, the monopolisation of wealth and the means of production by those at the top of the power structure began.  The development of public and private enterprises became the priority.  These enterprises offered a number of well-paid positions and sinecures.  The members of the ruling caste had an undeniable comparative advantage: they had - and still have - the “guanxi", the connections that allow them to obtain authorisation more quickly, to get wind of opportunities, or to know that their backs are covered by the authority of the state.  Rong Yiren was a key figure in this period, a leader representing to some extent the continuity between the pre-revolutionary era and the return of capitalism in the 1980s, and encapsulating the politics of the Chinese state.

    Rong Yiren was the heir to a dynasty of Shanghai capitalists. While four of his six brothers left China during the revolution, he stayed and continued to run the family businesses, even after the government took over 50% of them in 1956.  Despite the fact that he was not a member of the CCP, in 1957 he was appointed deputy mayor of Shanghai, vice-minister of the textile industry in 1959 and, after the Cultural Revolution and Mao's death, he returned to his former positions under Deng Xiaoping.

    In 1979, Deng asked him to form a company to attract foreign capital. CITIC, public on paper, actually functioned as a capitalist enterprise: it ran a bank in competition with state banks, arranged loans, sold bonds on foreign markets, invested in and imported equipment for Chinese companies, and owned companies abroad.  CITIC became a den of dignitaries’ sons who, when appointed to leadership positions, reapplied the laws of the market, accumulation and predation.  After serving as vice-president of the National People's Congress, Rong was elected vice-president of China, a position he held from 1993 to 1998.  His son took over at CITIC until 2008, after one of the subsidiaries he headed lost 15 billion yuan, forcing him and the whole family to resign. In “compensation”, they were given a large area of land resources in Hainan, whose real estate development was able to secure their position.

    By the early 1980s, considerable sums of money were being sucked up by those occupying the heights of power.  Three ruling families - those of Deng Xiaoping, Wang Zhen and Rong Yiren – had accumulated more than 100 million yuan (14.2 million euros) by 1984.  But the entire ruling caste had organised itself to take advantage of the windfall, appointing one or two members of each family to handle business rather than power.  While the best-known families number only a few hundred, those who appropriate power within the economy are estimated to total between 3,000 and 5,000, forming a thin layer of oligarchs with mixed but competing interests.  In 2016, all seven members of the CCP Political Bureau Standing Committee had relatives involved in business.  Corruption permeates all levels.  But in a Chinese society where power had until then cultivated a certain form of egalitarianism, the enrichment of the leaders scandalised very early on.

One journalist has estimated the wealth privatised since the 1990s by these ruling families at $2 trillion.  These families represent half of China’s billionaires.  The richest man in China is Wang Jianlin, an army veteran who, along with Bo Xilai, one of Xi Jinping’s rivals, pioneered large-scale real estate corruption.  Hu Jintao, former secretary general of the CCP, is said to have only a few tens of millions of euros, Xi Jinping, the family is said to have transferred more than 6 billion dollars abroad over the years, before being forcibly sidelined.

The return of the diaspora

The resurgence of the bourgeoisie was also achieved through the return of the diaspora.  Most of the Chinese in the “original” diaspora were emigrants from southern China, especially from the cities of the Pearl River Delta around Canton, not far from Hong Kong.  They had emigrated in the early 20th century or at the time of the Nationalist Revolution of 1949.  By 1992, they represented 50 million people, including 17m in Taiwan, 5m in Hong Kong (it was still under British rule until 1997), 2m in the United States.

    Forty years of Maoism had not severed family ties, especially with Hong Kong emigrants.  It was not by chance that Deng Xiaoping opened two of the first four Special Economic Zones (SEZ) in Guangdong, near Hong Kong.  He was counting on these links, and rightly so: the return of Hong Kong emigrants transformed the fishing village of Shenzhen, which borders Hong Kong, into today’s metropolis of 30 million inhabitants.  In the early 1990s, the diaspora alone controlled two-thirds of foreign investment in China through these SEZs, and 80% in Guangdong.  These investments were given preferential treatment.  In 1978, wages in the SEZs were ten times lower than in Hong Kong; land three times cheaper.  The exemptions from customs duties and tax breaks on people and profits convinced the emigrant bourgeoisie to relocate their industries and place their investments there.  In 1992, Hong Kong industry employed 800,000 people in Hong Kong itself and 2.5 million in Guangdong.  Half of its exports and re-exports were subcontracted to China.

    Those capitalists who knew the workings of the Chinese state, or who had knowledge of it, were at a particular advantage.  This was especially so because their investments were reinforced by the countless nominees used by members of the Chinese ruling classes to recycle the money they diverted into the SEZs.  In 1993, a journalist did some accounting and estimated that in three years, from 1990 to 992, between $30 and $40 billion had been smuggled out of China,

Taiwan’s industrialists followed Hong Kong’s, but in the Fujian SEZ, across the Taiwan Strait.  In Guangdong, Fujian, Shanghai and Hainan, the bourgeoisie returned to the country, with the approval of the Chinese government, and the links, which had been weakened but not broken under Maoism, were strengthened.

The fear of the working class

State policy and the role of the CCP changed over time.  For while the general orientation to reintroduce the market and allow the ruling class and capitalists to flourish – was clear, the relationship between the enterprises, the party and the state still had to be determined.  Until then, the party had centralised all power and had primacy in the enterprises.  The Chinese government first loosened the links between the enterprises and the CCP, and more generally between the centre and the provinces, between local government communities, in a general movement to decentralise and empower the economy.  The aim was to remove the party from the day-to-day management of enterprises, the state apparatus and the economy, and to prepare for its privatisation.

    The political crisis that ended in bloodshed on 4 June 1989 in Tiananmen Square put an end to this orientation.  This crisis had begun in 1987 with the surge in inflation following the liberalisation of prices in rural markets.  Attempts to curb inflation had resulted in the abrupt halting of some investments and the dismissal of many workers, while the enrichment and corruption of senior officials became increasingly visible.  When the students began to demonstrate for social and political freedoms, they were joined by many workers in a united protest against the regime, which made the Chinese leadership fear the worst.  Their reaction was equal to their fear.  The crackdown that began in Tiananmen Square left thousand dead: as many as 10,000 according to some sources.

    The Chinese leaders did not intend to abandon the return to a market economy.  But while pursuing its reintroduction, they chose to reassert the role of the CCP within Chinese society to ensure its stability.  The CCP is a party of tens of millions of members, essentially a party of careerists, but to provide the top leadership with direct and rapid leverage throughout Chinese society, the size of the state apparatus was doubled, at multiple levels.  The party's intervention in Chinese society thus returned in force, especially since, for the Chinese leaders, the experience of the Tiananmen events was amplified by that of the fall of the USSR in 1990, a fall interpreted by Chinese officials as the fruit of the weakness of the Communist Party of the Soviet Union (CPSU) in the face of centrifugal tendencies fuelled by liberal winds.  In order to continue the restoration of the market economy, society had to be locked down, and the CCP was - and still is - an essential instrument of this locking down.

Looting the state

After the repression of 1989 and a few months’ pause, the Chinese leaders relaunched the “reforms”, which from the mid-1990s onwards resulted in the privatisation of large sectors of the economy, although they did not officially admit this.  While the state claimed to “keep the big fish and let the small ones go” i.e., to sell only small enterprises, many medium-sized enterprises were in fact privatised.  Profitable subsidiaries of large state-owned enterprises were butchered, sold, or floated on the stock exchange, effectively transformed into commercial enterprises identical to private ones, while retaining an officially public status.  By 2001, 86% of state-owned enterprises had been restructured and 70% of them had been partially or fully privatised.  This wave of privatisation was accompanied by the dismissal of 30-40 million workers.  In six years, between 1996 and 2001, employment in manufacturing industry was reduced by 40%.  If there were protests, they were sporadic and limited.  The Chinese government was able to take advantage of the demoralisation of the workers after the defeat and repression of 1989.

    One of the consequences of these privatisations was the rapid rise of managers of state-owned enterprises who occasionally became owners or managing directors of private companies.  The process also benefited the top managers of local government authorities.  A report on private enterprises in 2002 revealed that in 95% of cases, the former management had become the main investors or new managers of privatised companies.  Similarly, party leaders have become investors in almost all municipal enterprises in large cities or rural municipalities.  According to another estimate, 60% of the former officials bought their companies as part of the reform of the system.  This privatisation led to the emergence of millions of “new” bourgeois and petty bourgeois. In this way, the Chinese leaders were trying to create a broader social base.  For the students who dreamed of democracy in 1989, they pointed to another path: that of wealth and business.

The life of Desmond Shum, a textbook case

The life of Desmond Shum, which he recounts in a book - La roulette chinoise, published by Saint-Simon, March 2022 - is characteristic of this bourgeoisie, which disappeared from the scene for a whole period, but resumed its place when conditions became favourable again.

    Contrary to what is written on the back cover, Desmond Shum was not the child of a poor family.  His grandfather was a famous Shanghai barrister, who believed that the CP would make room for the capitalist class to build the new China.  He was not wrong, but this took longer than he expected.  Desmond Shum's mother's family was of the same social standing.  Before 1949, his maternal grandfather commuted between Hong Kong and Shanghai to run his businesses.  After the revolution, when the rest of the family emigrated to Hong Kong, Desmond's grandmother returned to Shanghai.  She suffered little under the new regime.  The family were considered as “patriotic overseas Chinese”.  The CP even asked Desmond's maternal grandfather, who had emigrated to Hong Kong, to run the China Petroleum Corporation branch there.  The grandmother never had to work.  She was able to employ servants on a permanent basis, even during the Cultural Revolution.

In 1976, when it was impossible for ordinary people to leave China, Desmond and his parents obtained visas and made a new life in (British)

Hong Kong.  The father was recruited by a giant American chicken-processing enterprise, which had realised that there was gold to be made in selling to the Chinese all the parts of the chicken that Americans wouldn't eat, provided they had a middleman who knew how to get the meat into the country despite the administrative obstacles.

    Every Sunday, the Shanghai emigre community in Hong Kong would meet to discuss early investments in this new, open China, while reading the Asian edition of the Wall Street Journal.  In 1989, Desmond left to finish his studies in the United States, a favourite destination for the children of dignitaries.

    On his return to Hong Kong, he got a job with a company that was keen to e><port beer to China without paying customs duties.  He was even approached by a Chinese naval officer who suggested that he smuggle the beer on his ship. He then joined a telecommunications company that rolled out 10,000 kilometres of fibre optics in 10 months, a feat that would not have been possible without the involvement of the son of CCP leader Jiang Zemin in the company.  As

    Desmond Shum says: “It was the combination of initiative and political pedigree that allowed China to take off (...), a way for ambitious people like me to make something of our lives”.

    Desmond Shum would have remained a small- time capitalist without Whitney Duan, his future wife, and her connections.  Whitney had joined the CCP when she was working for the PLA, the People's Liberation Army.  She was responsible for attracting investors to the province and began to build her network. At the time, the PLA was a multi-billion dollar business empire that invested in everything from vineyards to pharmaceuticals to real estate.  The corruption that reigned there was legendary.  In 1996, when the CCP ordered the military to divest itself of all its business holdings, the company Whitney Duan had set up won the military's market for imported computer supplies.

    Desmond Shum's and Whitney Duan's connections in the business world, their connections with the CCP and the government machinery brought them their first millions.  But they only reached the top with the help of a third person, the one Desmond Shum names in his book as “Aunt Zhang", who is none other than the wife of Wen Jiabao, China's prime minister from 2003 to 2013.  Shum describes Aunt Zhang's role in their company's affairs as the sponsorship needed to secure billions in government orders, a practice most common in the capitalist world, but in this case done in the name of socialism.  Aunt Zhang received 30% of all business.  As a result, the Wen family's fortune now stands at $2.7 billion (£2.2bn), and Aunt Zhang's mother, saw her's jump from zero to nearly $200 million (£164m).

The Chinese state and the Chinese bourgeoisie today

Today, while the importance of the market has increased considerably, the state has retained a very strong participation in the economy, controlling the largest companies; notably the 117 so-called strategic companies of the SASAC (the agency in charge of supervising state- owned companies), controlling the banks and the financial markets, and steering the rise of new sectors such as aeronautics.  From this point of view, it is no different from the Western states.  Like them, it defends the general interests of its ruling class.  It was the Chinese state that revived the Chinese (and global!) economy in 2008 by investing in infrastructure and real estate.  It is now ensuring that its current property crisis does not turn into a complete meltdown.

    The Chinese state also protects the ruling class from the reactions of workers, whose exploitation has become much worse in the past 30 years, and of peasants, who are regularly robbed of their land, which local authorities sell to property developers.

    Finally, while acting as an intermediary for Western capitalists, the Chinese state protects the interests of its ruling class from imperialism. Thus, it is the state that seeks export markets, through initiatives like the “New Silk Roads”, in an attempt to lift the Chinese economy out of its internal limitations.  It is the state that pilots companies on the Western stock exchanges so that the biggest or most valuable ones do not escape it.  But since Western capitalists chose to invest in China in the 1990s and 2000s, it is also the Chinese state that guarantees their profits by allowing them to exploit a working class now made up of hundreds of millions of workers who must be kept in check.  The Chinese capitalists also benefit from these Western investments, by introducing themselves as subcontractors or suppliers, or by acquiring new skills and technologies.

    The Chinese ruling class therefore owes everything to the state.  They are aware of this and, if they forget, leaders like Xi Jinping regularly remind them of it.  This is why the clans in power will put a Jack Ma or a Whitney Duan into receivership, sacrifice a Bo Xilai from time to time in the name of the fight against corruption, or impose a particular policy on this or that company, this or that sector.

    The Chinese state is a bourgeois state that has managed to develop the Chinese economy and bourgeoisie in an imperialist environment.  Such success could not have been achieved if the Chinese state had not put itself at the service of imperialism, offering up part of its market and its workers, when it did.  That is, at a time when Western capitalism was (it still is!) mired in endless crisis and thus when Chinese low wages offered an opportunity.  The ongoing but growing tensions between China and the US are a reminder of the limits that imperialism will tolerate when it comes to the emergence of a competing power.  As for China's development, it remains relative.  It only concerns the coastal areas and the big cities, excluding the countryside where hundreds of millions of people still live in backward conditions.  It is also relative if we take a global view.  The return of the bourgeoisie from imperialist countries to China, to exploit underpaid labour, and which took over from the Chinese diaspora investments in the early 2000s, has been at the expense of Western economies.  Their capital has gone to where it is most profitable, accelerating the slowdown of the old capitalist economies.  The result of this process is the emergence of a Chinese working class now several hundred million strong, a working class that will have no choice but to fight for its own interests and revive revolutionary ideas.